FORM DEF 14A
SCHEDULE DEF-14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
(Amendment No. )
Filed by the Registrant þ
Filed by a Party other than the Registrant o
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Preliminary Proxy Statement |
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Confidential, for Use of the Commission Only (as permitted by Rule 14a-6(e)(2)) |
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Definitive Proxy Statement |
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Definitive Additional Materials |
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Soliciting Material Pursuant to Section 240.14a-12 |
CINCINNATI FINANCIAL CORPORATION
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of filing fee (check the appropriate box):
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No fee required. |
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Fee computed on table below per Exchange Act Rules 14a-6(i)(1) and 0-11. |
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Per unit price of other underlying value of transaction computed pursuant to
Exchange Act Rule 0-11 (set forth the amount on which the filing fee is calculated
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Proposed maximum aggregate value of transaction: |
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Fee paid previously with preliminary materials. |
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Check box if any part of the fee is offset as provided by Exchange Act Rule 0-11(a)(2)
and identify the filing for which the offsetting fee was paid previously. Identify the previous
filing by registration statement number, or the Form or Schedule and the date of its filing. |
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N/A |
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Cincinnati Financial Corporation |
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2009 SHAREHOLDER MEETING NOTICE
AND PROXY STATEMENT |
March 20,
2009
To the Shareholders of Cincinnati Financial Corporation:
You are cordially invited to attend the Annual Meeting of Shareholders of Cincinnati Financial
Corporation, which will take place at 9:30 a.m. on Saturday, May 2, 2009, at the Cincinnati Art Museum, located in Eden Park,
Cincinnati, Ohio. The business to be conducted at the meeting includes:
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Electing one director for a term of one year and five directors for terms of three years, |
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Ratifying the selection of Deloitte & Touche LLP as the companys independent registered public
accounting firm for 2009, |
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Adopting the Cincinnati Financial Corporation Annual Incentive Compensation Plan of 2009, |
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Adopting the Cincinnati Financial Corporation Directors Stock Plan of 2009, |
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Acting on a shareholder proposal, if introduced at the meeting, and |
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Transacting such other business as may properly come before the meeting. |
Shareholders of record at the close of business on March 4, 2009, are entitled to vote at the
meeting.
Whether or not you plan to attend the meeting, please cast your vote as promptly as possible. We
encourage you to vote via the Internet. It is convenient and saves your company significant postage and processing costs. You
also may submit your vote by telephone or by mail, if you prefer.
Your Internet or telephone vote must be received by 11:59 p.m. Eastern Daylight Time on May 1,
2009, to be counted in the final tabulation. Your interest and participation in the affairs of the company are appreciated.
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/S/ Steven J. Johnston
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Steven J. Johnston, FCAS, MAAA, CFA |
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Secretary |
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This proxy statement, the Annual Report on Form 10-K, the Letter from the Chairman and the Chief
Executive Officer and voting instructions were first made available to Cincinnati Financial Corporation shareholders on March 20, 2009
Table of Contents
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Frequently Asked Questions
Who is soliciting my vote? The board of directors of Cincinnati Financial Corporation is
soliciting your vote for the 2009 Annual Meeting of Shareholders.
Who is entitled to vote? Shareholders of record at the close of business on March 4, 2009, may
vote.
How many votes do I have? You have one vote for each share of common stock you owned on March
4, 2009.
How many votes can be cast by all shareholders? 162,504,107 outstanding shares of common stock
can be voted as of the close of business on March 4, 2009.
How many shares must be represented to hold the meeting? A majority of the outstanding shares,
or 81,252,054 shares, must be represented to hold the meeting.
How many votes are needed to elect directors and to approve the proposals? The nominees for
director receiving the six highest vote totals will be elected as directors. Our independent
registered public accounting firm is ratified and other proposals are approved if votes cast
in favor of the proposal exceed votes cast against it.
What if I vote withhold or abstain? Withhold or abstain votes have no effect on the
votes required to elect directors, to ratify the independent registered public accounting firm
or to approve or reject the other proposals.
Can my shares be voted if I dont return my proxy and dont attend the annual meeting? If your
shares are registered in your name, the answer is no. If your shares are registered in the
name of a bank, broker or other nominee and you do not direct your nominee as to how to vote
your shares, applicable rules provide that the nominee generally may vote your shares on any
of the routine matters scheduled to come before the meeting. If a bank, broker or other nominee indicates on a proxy that it does not have
discretionary authority to vote certain shares on a particular matter, these shares (called
broker non-votes) will be counted as present in determining whether we have a quorum but will
have no effect on the votes required to elect directors, to ratify the independent registered
public accounting firm or to approve or reject the other proposals.
How do I vote? You may vote by proxy, whether or not you attend the meeting, in one of three
ways:
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Internet (www.proxyvote.com) |
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Telephone (800-690-6903) |
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Mail |
Even if you plan to attend the annual meeting, we ask that you vote by Internet, telephone or
mail. Attending the meeting does not constitute a revocation of a previously submitted vote.
Instructions for voting via the Internet or by telephone, along with the required Control Number
(the Control Number is unique to each account), were provided to you by mail or by e-mail in
late March or early April. If you receive information from us by mail, you also received a
Notice or proxy card that can be returned in the postage-paid envelope that was included in the
same envelope.
The deadline for Internet and telephone voting is 11:59 p.m., Eastern Daylight Time, May 1,
2009. If you choose to vote by mail, be sure to return your proxy card in time to be received
and counted before the Annual Meeting.
Where do I locate my Control Number so I can vote? If you receive our information in the mail,
it will be on the card that also gives your name and the number of shares you hold. If you
receive our information in e-mails, the Control Number is in the text of the e-mail.
What if I cannot locate my Control Number If you hold shares directly in your name, you may
obtain your Control Number by calling
800-579-1639. If your shares are registered in the name
of a bank, broker or other nominee, that firm will be able to supply the Control Number.
Can I obtain another proxy card so I can vote by mail? If you hold shares directly in your
name, you may obtain another proxy card by calling 800-579-1639. If your shares are registered
in the name of a bank, broker or other nominee, that firm will be able to supply another proxy
card.
Page 1
Can I change my vote or revoke my proxy? Yes. Just cast a new vote by Internet or telephone or
send in a new signed proxy card with a later date. If you hold shares directly in your name,
you may send a written notice of revocation to the secretary of the company. If you hold
shares directly in your name and attend the annual meeting, you also may choose to vote in
person at the meeting. To do so, at the meeting you can request a ballot and direct that your
previously submitted proxy not be used. Otherwise, your attendance itself does not constitute
a revocation of your previously submitted proxy.
How are the votes counted? Votes cast by proxy are tabulated prior to the meeting by the
holders of the proxies. Inspectors of election appointed at the meeting count the votes and
announce the results. The proxy agent reserves the right not to vote any proxies that are
altered in a manner not intended by the instructions contained in the proxy.
Could other matters be decided at the meeting? We do not know of any matters to be considered
at the annual meeting other than the election of directors and the proposals described in this
proxy statement. For any other matters that do properly come before the meeting, your shares
will be voted at the discretion of the proxy holder.
Who can attend the meeting? The meeting is open to all interested parties.
Can I listen to the meeting if I cannot attend in person? If you have access to the Internet,
you can listen to a live webcast of the meeting. Instructions will be available on the
Investors page of www.cinfin.com approximately two weeks before the meeting. An audio replay
will be available on the Web site within two hours after the close of the meeting.
Why did my materials arrive in different envelopes Again this year, our paper mailings were
timed to meet new regulatory standards that help us keep mailing and paper costs low. Most
shareholders who have not elected to receive information using electronic delivery received
three mailings:
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In late March: you received a card notifying you that you could cast your vote
after reviewing your companys year-end 2008 financial materials and proxy statement
online. You also could request paper materials. |
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In early April: if you hadnt yet voted, you received a second notification that
your companys information is available. This notice also serves as your paper proxy
card. |
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A few days later, you received this proxy statement along with managements
annual letter on performance, issues, events and trends. |
If you are enrolled in electronic delivery, you received an e-mail notifying you of the
availability of the information on the Internet and providing electronic voting instructions.
How can I obtain a 2008 Annual Report You can obtain our 2008 Annual Report on Form 10-K as
filed with the Securities and Exchange Commission (SEC) at no cost in several different ways.
You may view, search or print the document online from www.cinfin.com/Investors. You may ask
that a copy be mailed to you by contacting the secretary of Cincinnati Financial Corporation.
Or, you may request it directly from Shareholder Services. Please see the Investor Contact
Page of our Web site for details.
Page 2
Security Ownership of Principal Shareholders and Management
Under Section 13(d) of the Securities Exchange Act of 1934 (Exchange Act), a beneficial owner of a
security is any person who directly or indirectly has or shares voting power or investment
authority over such security. A beneficial owner under this definition need not enjoy the economic
benefit of such securities. The following are the only shareholders known to the company who are
deemed to be beneficial owners of at least 5 percent of our common stock as of March 1, 2009. John
J. Schiff, Jr. and Thomas R. Schiff, directors of the company, are brothers.
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Amount and Nature of |
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Name and Address of Beneficial Owner |
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Beneficial Ownership |
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Reference |
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Common stock |
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John J. Schiff, Jr., CPCU Cincinnati Financial Corporation
6200 South Gilmore
Fairfield, OH 45014 |
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12,596,515 |
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(1)(2)(3)(4)(5) |
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7.73 |
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Common stock |
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Thomas R. Schiff Cincinnati Financial Corporation
6200 South Gilmore
Fairfield, OH 45014 |
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9,432,954 |
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(1)(2)(5) |
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5.80 |
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The outstanding common shares beneficially owned by each other director and nondirector executive
officers as of March 1, 2009, are shown below:
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Amount and Nature of |
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Name of Beneficial Owner |
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Beneficial Ownership |
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Other Directors |
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William F. Bahl, CFA, CIC |
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221,576 |
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(6) |
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0.14 |
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James E. Benoski |
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622,041 |
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(3) |
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0.38 |
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Gregory T. Bier, CPA (Ret.) |
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7,423 |
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Kenneth C. Lichtendahl |
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19,781 |
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0.01 |
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W. Rodney McMullen |
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27,347 |
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0.02 |
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Gretchen W. Price |
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12,674 |
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0.01 |
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Douglas S. Skidmore |
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22,743 |
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0.01 |
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Kenneth W. Stecher |
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222,015 |
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(3)(5) |
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0.14 |
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John F. Steele, Jr. |
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8,162 |
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0.01 |
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Larry R. Webb, CPCU |
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479,541 |
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(5)(8) |
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0.30 |
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E. Anthony Woods |
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18,404 |
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0.01 |
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Nondirector Executive Officers |
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Donald J. Doyle, Jr., CPCU, AIM |
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80,008 |
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(3)(5) |
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0.05 |
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Craig W. Forrester, CLU |
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81,884 |
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(3)(4)(5) |
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0.05 |
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Martin F. Hollenbeck, CFA, CPCU |
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36,982 |
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(3)(4)(5) |
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0.02 |
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Steven J. Johnston, FCAS, MAAA, CFA |
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22,000 |
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0.01 |
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Thomas A. Joseph, CPCU |
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170,918 |
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(3)(5)(9) |
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0.11 |
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Eric N. Mathews, CPCU, AIAF |
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90,572 |
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(3)(5) |
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0.06 |
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Martin J. Mullen, CPCU |
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49,469 |
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(3)(5) |
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0.03 |
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Larry R. Plum, CPCU, ARe |
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272,136 |
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(3)(4)(5) |
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0.17 |
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David H. Popplewell, FALU, LLIF |
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168,258 |
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(3)(5) |
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0.10 |
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Jacob F. Scherer, Jr. |
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257,894 |
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(3)(5) |
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0.16 |
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Joan O. Shevchik, CPCU, CLU |
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65,352 |
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(3) |
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0.04 |
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Charles P. Stoneburner II, CPCU, AIM |
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42,187 |
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(3)(5) |
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0.03 |
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Timothy L. Timmel |
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270,097 |
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(3)(4)(5) |
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0.17 |
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All directors and nondirector executive officers as a group (26 individuals) |
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17,907,980 |
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10.88 |
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Except as otherwise indicated in the notes below, each person has sole voting and investment power
with respect to the common shares noted.
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Includes 4,403,341 shares owned of record by the John J. and Mary R. Schiff Foundation
and 2,756,177 shares owned of record by the John J. Schiff Charitable Lead Trust,
the trustees of all of which are Mr. J. Schiff, Jr., Mr. T. Schiff and Ms. Suzanne
S. Reid, who share voting and investment power equally. |
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Includes 107,186 shares owned of record by the John J. & Thomas R. Schiff & Co. Inc.
pension plan, the trustees of which are Mr. J. Schiff, Jr., and Mr. T. Schiff, who
share voting and investment power; and 124,249 shares |
Page 3
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owned by John J. & Thomas R.
Schiff & Co. Inc. of which Mr. J. Schiff, Jr., and Mr. T. Schiff are principal
owners. |
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Includes shares available within 60 days from exercise of stock options in the amount of
501,055 shares for Mr. J. Schiff, Jr.; 465,170 shares for Mr. Benoski; 131,870
shares for Mr. Stecher; 64,560 shares for Mr. Doyle; 44,218 shares for Mr.
Forrester; 29,526 shares for Mr. Hollenbeck; 131,870 shares for Mr. Joseph; 55,834
shares for Mr. Mathews; 32,335 shares for Mr. Mullen; 137,645 shares for Mr. Plum;
121,107 shares for Mr. Popplewell; 142,895 shares for Mr. Scherer; 42,551 shares
for Ms. Shevchik; 25,886 shares for Mr. Stoneburner; and 119,632 shares for Mr.
Timmel. |
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Includes shares held in the companys nonqualified savings plan for highly compensated
associates in the amount of 12,800 shares for Mr. J. Schiff, Jr.; 956 shares for
Mr. Forrester; 3,341 shares for Mr. Hollenbeck; 2,248 shares for Mr. Plum; 184
shares for Mr. Popplewell and 7,579 shares for Mr. Timmel. Individuals
participating in this plan do not have the right to vote or direct the disposition
of shares. |
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Includes shares pledged as collateral as of March 1, 2009 in the amount of 1,363,521
shares for Mr. J. Schiff; 1,009,270 shares for Mr. T. Schiff; 84,000 shares for Mr.
Webb; 15,000 shares for Mr. Doyle; 27,427 shares for Mr. Forrester; 35,988 shares
for Mr. Joseph; 3,010 shares for Mr. Hollenbeck; 31,212 shares for Mr. Mathews;
15,814 shares for Mr. Mullen; 119,212 shares for Mr. Plum; 45,143 shares for Mr.
Popplewell; 96,331 shares for Mr. Scherer; 30,475 shares for Mr. Stecher; 15,301
shares for Mr. Stoneburner and 100,033 shares for Mr. Timmel. |
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Includes 8,821 shares held in the Bahl Family Foundation, of which Mr. Bahl is
president; and 10,256 shares held in a trust for the benefit of a child, for which
Mr. Bahl is not the trustee and has no investment or voting rights for the trust. |
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Includes 7,035 shares owned of record by Skidmore Sales Profit Sharing Plan, of which
Mr. Skidmore is an administrator and shares investment authority. |
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Includes 186,257 shares owned of record by a limited partnership of which Mr. Webb is a
general partner; 43,478 shares owned of record by an IRR marital trust for the
benefit of his wife and children; 13,601 shares held in Mr. Webbs fathers family
trust and 60,411 shares held in his mothers IRR living trust. |
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Includes 3,000 shares held in the Estate of John J. Joseph for which Mr. Joseph is
co-executor and shares voting and investment authority. |
Section 16(a) Beneficial Ownership Reporting Compliance
Directors, executive officers and 10 percent shareholders are required to report their beneficial
ownership of our stock according to Section 16 of the Exchange Act. Those individuals are required
by SEC regulations to furnish the company with copies of all Section 16(a) forms they file.
SEC regulations require us to identify in this proxy statement anyone who filed a required report
late during the most recent calendar year. Based on our review of forms we received, or written
representations from reporting persons stating that they were not required to file these forms, we
believe that, during the calendar year 2008, all Section 16(a) filing requirements were satisfied
on a timely basis except the sale of 1,132 shares on May 7, 2008 by the Bahl & Gaynor Profit
Sharing Plan, of which William F. Bahl is a trustee. The transaction was reported in a Form 5 filed
by Mr. Bahl on February 12, 2009.
Page 4
Information About the Board of Directors
The mission of the board is to encourage, facilitate and foster the long-term success of Cincinnati
Financial Corporation. The board directs management in the performance of the companys obligations
to our independent agents, policyholders, associates, communities and suppliers in a manner
consistent with the companys mission and with the boards responsibility to shareholders to
achieve the highest sustainable shareholder value over the long term.
Proposal 1 Election of Directors
The board of directors currently consists of 13 directors divided into three classes, and each year
the directors in one class are elected to serve terms of three years. This means that shareholders
generally elect one-third of the members of the board of directors annually. The term of office of
six directors expires as of the 2009 Annual Meeting of Shareholders.
According to the Sixth Article of the companys Articles of Incorporation, the three classes of the
companys directors must be of nearly equal size, with no class having more than one more director
than any other class. During 2008, the classes became unbalanced as one director resigned from the
board when called to active military service and a new director was appointed by the board. The
companys practice is to require any new director appointed by the board to stand for election at
the next annual meeting of shareholders. To rebalance the classes, of the six directors with terms
expiring in 2009, one director, James E. Benoski, is nominated for election to a term of one year
expiring 2010 and five directors are nominated for election to terms of three years expiring 2012.
The board of directors recommends a vote FOR James E. Benoski as director to hold office until the
2010 Annual Meeting of Shareholders and FOR William F. Bahl, Gretchen W. Price, John J. Schiff,
Jr., Kenneth W. Stecher and E. Anthony Woods as directors to hold office until the 2012 Annual
Meeting of Shareholders and until their successors are elected.
We do not know of any reason that any of the nominees for director would not accept the nomination,
and it is intended that votes will be cast to elect all six nominees as directors. In the event,
however, that any nominee should refuse or be unable to accept the nomination, the people acting
under the proxies intend to vote for the election of such person or people as the board of
directors may recommend.
For each nominee for election to the office of director and each current director whose term does
not expire at this time, listed below are principal business positions held currently and over the
past five years. Some directors also serve on various subsidiary boards.
Nominee for Director for Term Expiring 2010
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(age as of March 1, 2009) |
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Principal Business Positions Since March 2004 |
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James E. Benoski (70)
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Director since 2000. Vice chairman and, from
2006 to 2008, president and, from 2004 to 2008,
chief insurance officer of Cincinnati Financial
Corporation and The Cincinnati Insurance
Company, a subsidiary of the company. Chief
operating officer from 2006 to 2008 of
Cincinnati Financial Corporation. Chief
executive officer from 2006 to 2008 of The
Cincinnati Insurance Company; senior vice
president headquarters claims until 2006. |
Nominees for Directors for Terms Expiring 2012
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(age as of March 1, 2009) |
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Principal Business Positions Since March 2004 |
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William F. Bahl, CFA, CIC (57)
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Director since 1995. Chairman of Bahl &
Gaynor Investment Counsel Inc., based in
Cincinnati. Trustee until 2006 of The
Preferred Group of Funds. Director since
2005 of LCA-Vision Inc. |
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Gretchen W. Price (54)
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Director since 2002. Chief financial officer
since 2008 of philosophy inc., an
international skin care and cosmetics
company, based in Phoenix, Arizona. Vice
president until 2008 of go-to-market
reinvention for global operations of Procter
& Gamble, based in Cincinnati. Vice
president until 2007 of finance and
accounting for global operations. |
Page 5
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(age as of March 1, 2009) |
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Principal Business Positions Since March 2004 |
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John J. Schiff, Jr., CPCU (65)
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Director since 1968. Chairman and, until
2008, chief executive officer and, until
2006, president of Cincinnati Financial
Corporation. Chairman until 2006 and since
2008 of The Cincinnati Insurance Company;
president and chief executive officer until
2006. Director of John J. & Thomas R. Schiff
& Co. Inc., a privately owned independent
insurance agency; Fifth Third Bancorp; and
The Standard Register Company; all
Cincinnati-area companies. |
|
Kenneth W. Stecher (62)
|
|
Director since 2008. President and chief
executive officer since 2008 of Cincinnati
Financial Corporation and The Cincinnati
Insurance Company. Executive vice president
from 2006 to 2008 and, until 2008, chief
financial officer, principal accounting
officer and secretary of Cincinnati
Financial and Cincinnati Insurance; senior
vice president until 2006. Treasurer until
2008 of Cincinnati Financial. Chairman from
2006 to 2008 of Cincinnati Insurance. |
|
E. Anthony Woods (68)
|
|
Director since 1998. Chairman and chief
executive officer of SupportSource LLC, a
healthcare consulting firm. Chairman of
Deaconess Associations Inc., a healthcare
holding company, based in Cincinnati.
Chairman since 2006 and director since 2004
of LCA-Vision Inc. |
Continuing Directors for Terms Expiring 2010
|
|
|
(age as of March 1, 2009) |
|
Principal Business Positions Since March 2004 |
|
Gregory T. Bier, CPA (Ret.) (62)
|
|
Director since 2006. Retired managing
partner, Cincinnati office of Deloitte &
Touche LLP. Director since 2008 of LifePoint
Hospitals Inc. |
|
Douglas S. Skidmore (46)
|
|
Director since 2004. Chief executive
officer, president and director of Skidmore
Sales & Distributing Company Inc., a
family-owned, full-service distributor and
broker of quality industrial food
ingredients, based in the Cincinnati area.
Chief executive officer since 2006 of Essex
Grain Products Inc., a subsidiary of
Skidmore Sales & Distributing Company Inc.
Managing partner since 2004, Mustang Real
Estate Holdings LLC. |
|
Larry R. Webb, CPCU (53)
|
|
Director since 1979. President, director, a
principal owner and agent of Webb Insurance
Agency Inc., a privately owned independent
insurance agency, based in Lima, Ohio. |
Continuing Directors for Terms Expiring 2011
|
|
|
(age as of March 1, 2009) |
|
Principal Business Positions Since March 2004 |
|
Kenneth C. Lichtendahl (60)
|
|
Director since 1988. President, chief
executive officer and director of Tradewinds
Beverage Company, based in Cincinnati. |
|
W. Rodney McMullen (48)
|
|
Director since 2001. Vice chairman of The
Kroger Co., based in Cincinnati. |
|
Thomas R. Schiff (61)
|
|
Director since 1975. Chairman, chief executive
officer and agent of John J. & Thomas R.
Schiff & Co. Inc., a privately owned
independent insurance agency, based in the
Cincinnati area. Chief executive officer of
Lightborne Properties, Lightborne
Communications and Lightborne Publications,
media companies based in the Cincinnati area. |
|
John F. Steele, Jr. (55)
|
|
Director since 2005. Chairman since 2004 and
chief executive officer of Hilltop Basic
Resources Inc., a family owned aggregates and
ready-mixed concrete supplier to the
construction industry, based in the Cincinnati
area. President until 2004. Director since
2006 of Smook Bros. (Thompson) Inc. and since
2004 of William A. Powell Company. |
Page 6
Information About Nondirector Executive Officers
Executive officers are elected to one-year terms at the annual meetings of the boards of directors
of the company and its subsidiaries. Unless otherwise indicated, each executive officer has served
continuously since first elected to that position. For each nondirector executive officer, we list
below principal positions held currently and over the past five years in the company, in our lead
property casualty insurance subsidiary, and in other subsidiaries when the officer serves as
president. When a nondirector executive officers service with the company is less than five years,
we also include principal occupations with other firms.
Cincinnati Financial owns 100 percent of its three subsidiaries: The Cincinnati Insurance Company,
CFC Investment Company and CSU Producer Resources Inc. The Cincinnati Insurance Company leads the
property casualty group and owns 100 percent of its four subsidiaries: The Cincinnati Casualty
Company, The Cincinnati Indemnity Company, The Cincinnati Specialty Underwriters Insurance Company
and The Cincinnati Life Insurance Company. Some executive officers also serve on various subsidiary
boards.
Nondirector Executive Officers
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Primary Title(s) and Business |
|
Officer |
(ages as of March 1, 2009) |
|
Responsibilities Since March 2004 |
|
Since |
|
Donald J. Doyle, Jr., CPCU, AIM (42)
|
|
Senior vice
president of The
Cincinnati
Insurance Company.
Responsible since
2007 for excess and
surplus lines
operations;
responsible from
2004 to 2007 for
internal audit and
until 2004 for
strategic planning
and enterprise risk
management.
|
|
|
2008 |
|
|
|
|
|
|
|
|
Craig W. Forrester, CLU (50)
|
|
Senior vice
president of The
Cincinnati
Insurance Company.
Responsible for
information
technology systems.
|
|
|
2003 |
|
|
|
|
|
|
|
|
Martin F. Hollenbeck, CFA, CPCU (49)
|
|
President and chief
operating officer
since 2008 of CFC
Investment Company.
President from 2008
to 2009 of CinFin
Capital Management
Company, a former
subsidiary of
Cincinnati
Financial. Senior
vice president
since 2008 of
Cincinnati
Financial
Corporation. Senior
vice president
since 2009 of The
Cincinnati
Insurance Company;
vice president from
2005 to 2009;
assistant vice
president until
2005. Responsible
for investment
operations and
leasing and
financing services;
responsible until
2009 for asset
management services
operations.
|
|
|
2008 |
|
|
|
|
|
|
|
|
Steven J. Johnston, FCAS, MAAA, CFA (49)
|
|
Senior vice
president, chief
financial officer
and secretary since
2008 of Cincinnati
Financial
Corporation and The
Cincinnati
Insurance Company.
Treasurer since
2008 of Cincinnati
Financial. From
2006 to 2008,
consulted on risk
management,
economic capital
and executive
compensation
modeling, agency
valuation. Until
2006, chief
financial officer,
senior vice
president and
treasurer of State
Auto Financial
Corporation.
|
|
|
2008 |
|
|
|
|
|
|
|
|
Thomas A. Joseph, CPCU (53)
|
|
President since
2008 of The
Cincinnati Casualty
Company. Senior
vice president of
The Cincinnati
Insurance Company.
Responsible for
personal lines
underwriting
operations and
reinsurance;
responsible until
|
|
|
2003 |
|
Page 7
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
|
Primary Title(s) and Business |
|
Officer |
(ages as of March 1, 2009) |
|
Responsibilities Since March 2004 |
|
Since |
|
|
|
2008 for commercial
lines underwriting
operations except
machinery and
equipment. |
|
|
|
|
|
|
|
|
|
|
|
Eric N. Mathews, CPCU, AIAF (53)
|
|
Principal
accounting officer
since 2008 and vice
president,
assistant secretary
and assistant
treasurer of
Cincinnati
Financial
Corporation. Senior
vice president of
The Cincinnati
Insurance Company.
|
|
|
2001 |
|
|
|
|
|
|
|
|
Martin J. Mullen, CPCU (53)
|
|
Senior vice
president and chief
claims officer
since 2008 of The
Cincinnati
Insurance Company;
vice president
until 2008.
Responsible for
headquarters and
field claims
operations, special
investigations unit
and claims
administration;
responsible until
2008 for casualty
claims.
|
|
|
2008 |
|
|
|
|
|
|
|
|
Larry R. Plum, CPCU, ARe (62)
|
|
Senior vice
president of The
Cincinnati
Insurance Company.
Responsible for
government
relations;
responsible until
2008 for personal
lines underwriting
operations,
meetings and
travel.
Transitioning to
retirement in 2009.
|
|
|
1988 |
|
|
|
|
|
|
|
|
David H. Popplewell, FALU, LLIF (65)
|
|
President and chief
operating officer
of The Cincinnati
Life Insurance
Company.
Responsible for
life insurance
operations.
|
|
|
1997 |
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. (56)
|
|
Executive vice
president since
2008 of The
Cincinnati
Insurance Company;
senior vice
president until
2008. Responsible
for sales and
marketing,
including new
commercial lines
business,
relationships with
independent
agencies and, since
2008, research and
development and
meetings and
travel.
|
|
|
1995 |
|
|
|
|
|
|
|
|
Joan O. Shevchik, CPCU, CLU (58)
|
|
Senior vice
president of The
Cincinnati
Insurance Company.
Responsible for
corporate
communications.
|
|
|
2003 |
|
|
|
|
|
|
|
|
Charles P. Stoneburner II, CPCU, AIM (56)
|
|
Senior vice
president since
2008 of The
Cincinnati
Insurance Company;
vice president from
2005 to 2008 and
assistant vice
president until
2005. Responsible
for commercial
lines underwriting,
loss control,
premium audit and
staff underwriting;
responsible until
2008 for field
claims operations.
|
|
|
2008 |
|
|
|
|
|
|
|
|
Timothy L. Timmel (60)
|
|
Senior vice
president of The
Cincinnati
Insurance Company.
Responsible for
operations
including corporate
communications,
learning and
development, legal,
personnel and,
since 2008,
administrative
services, data
entry, maintenance,
printing,
regulatory and
consumer relations,
security and
information
security; also
responsible until
2008 for field
claims operations.
|
|
|
1997 |
|
Page 8
Information About Corporate Governance
Meetings of the Board of Directors
Board members are encouraged to attend the Annual Meeting of Shareholders, all meetings of the
board and the meetings of committees of which they are a member. The annual meeting of directors is
held immediately following the annual shareholders meeting at the same location. In May 2008, all
of the companys then 13 directors attended the Annual Meeting of Shareholders. The board of
directors of the company met six times and the executive committee of the board met five times
during 2008. The directors met in executive session four times during 2008. All directors attended
at least 85 percent of the board and committee meetings of which they were members.
Codes of Conduct and Committee Charters
On January 30, 2009, the board of directors re-adopted the Corporate Governance Guidelines, the
Code of Ethics for Senior Financial Officers and the Code of Conduct. Charters for the all of the
board committees were reviewed and re-approved at the same time. The guidelines, codes and charters
are available on our Web site at www.cinfin.com.
Communicating with the Board
Shareholders may direct a communication to board members by sending it to the attention of the
secretary of the company, Cincinnati Financial Corporation, P.O. Box 145496, Cincinnati, Ohio,
45250-5496. The company and board of directors have not established a formal process for
determining whether all shareholder communication received by the secretary will be forwarded to
directors. Nonetheless, the board welcomes shareholder communication and has instructed the
secretary of the company to use reasonable criteria to determine whether correspondence should be
forwarded. The board believes that correspondence has been and will continue to be forwarded
appropriately. However, exceptions may occur, and the board does not intend to provide management
with instructions that limit its ability to make reasonable business decisions. Examples of
exceptions would be routine items such as requests for publicly available information that can be
provided by company associates; vendor solicitations that appear to be mass-directed to board
members of a number of companies; or correspondence that raises issues related to specific company
transactions (insurance policies or claims) where there may be privacy concerns or other issues.
In some circumstances, the board anticipates that management would provide the board or board
member with summary information regarding correspondence.
Board Composition and Director Independence
Each year, based on all relevant facts and circumstances, the board determines which directors
satisfy the criteria for independence. To be found independent, a director must not have a material
relationship with the company, either directly or indirectly as a partner, other than a limited
partner, controlling shareholder or executive officer of another organization that has a
relationship with the company that could affect the directors ability to exercise independent
judgment.
Directors deemed independent are believed to satisfy the definitions of independence required by
the rules and regulations of the SEC and the listing standards of NASDAQ. The board has determined
that these directors and nominees meet the applicable criteria for independence as of January 30,
2009: William F. Bahl, Gregory T. Bier, Kenneth C. Lichtendahl, W. Rodney McMullen, Gretchen W.
Price, Douglas S. Skidmore, John F. Steele, Jr. and E. Anthony Woods. When making its determination
as to Mr. Bier, the board considered the fact that in 2008 an insurance subsidiary of the company
employed two of his adult children and a daughter-in-law in nonofficer positions. When making its
determination as to Mr. Lichtendahl, the board considered the fact that in 2009 the companys
leasing subsidiary leased equipment valued at $273,900 to Tradewinds Beverage Company, of which Mr.
Lichtendahl is the president and chief executive officer. The board determined that these
relationships presented no material conflict of interest and would not affect the ability of either
director to exercise his independent judgment in his role as a director. Following the re-election
of the directors included in this proxy, a majority (eight) of the 13 directors would meet the
applicable criteria for independence under the listing standards of NASDAQ.
Page 9
Standing Committees of the Board of Directors
The board of directors has five standing committees. Current committee assignments are noted below.
The board of directors will review committee assignments at its meeting on May 2, 2009.
Audit Committee The purpose of the audit committee is to oversee the process of accounting and
financial reporting, audits and financial statements of the company. The committee met four
times during the last year. The report of the audit committee begins on Page 13.
Six independent directors serve on the audit committee: William F. Bahl, Gregory T. Bier,
Kenneth C. Lichtendahl (chair), Gretchen W. Price, Douglas S. Skidmore and John F. Steele, Jr.
Each of these individuals meets the NASDAQ standards for audit committee member independence and
also is independent for purposes of Section 10A-3 of the Exchange Act. Further, Mr. Bahl, Mr.
Bier and Ms. Price qualify as financial experts according to the SEC definition and meet the
standards established by NASDAQ for financial expertise.
Compensation Committee The compensation committee discharges the responsibility of the board of
directors relating to compensation of the companys directors and officers, including its
principal executive officers and its internal audit officer. The committee also administers
the companys stock- and performance-based compensation plans. The committee met eight times
during the last year. The report of the compensation committee begins on Page 15.
Three independent directors serve on the compensation committee: W. Rodney McMullen (chair),
Gretchen W. Price and E. Anthony Woods.
Executive Committee The purpose of the executive committee is to exercise the powers of the
board of directors in the management of the business and affairs of the company between
meetings of the board of directors. The committee met five times during the last year.
Six directors serve on the executive committee: William F. Bahl, James E. Benoski, W. Rodney
McMullen, John J. Schiff, Jr. (chair),
Larry R. Webb and E. Anthony Woods. Independence
requirements do not apply to the executive committee.
Investment Committee The investment committee provides oversight of the policies and procedures
of the investment department of the company and its subsidiaries and reviews the invested
assets of the company. The objective of the committee is to oversee the management of the
portfolio to ensure the long-term security of the company. The committee met 11 times during
the last year.
Seven directors serve on the investment committee: William F. Bahl, Gregory T. Bier, James E.
Benoski, W. Rodney McMullen, John J. Schiff, Jr. (chair), Thomas R. Schiff and E. Anthony Woods.
Richard M. Burridge, CFA, a former director, serves as an adviser to the committee. Independence
requirements do not apply to the investment committee.
Nominating Committee The nominating committee identifies, recruits and recommends qualified
candidates for election as directors and officers of the company and as directors of its
subsidiaries. The committee also nominates directors for committee membership. Further, the
committee oversees compliance with the corporate governance policies for the company. The
committee met four times during the last year.
Four independent directors serve on the nominating committee: William F. Bahl (chair), Kenneth
C. Lichtendahl, Gretchen W. Price and Douglas S. Skidmore.
Consideration of Director Nominees
The nominating committee considers many factors when determining the eligibility of candidates for
nomination as director. The committees goal is to nominate candidates who contribute to the
boards overall effectiveness in meeting its mission. The committee is charged with identifying
nominees with certain characteristics:
|
|
Demonstrated character and integrity |
|
|
|
An ability to work with others |
|
|
|
Sufficient time to devote to the affairs of the company |
|
|
|
Willingness to enter into a long-term association with the company, in keeping with the
companys overall business strategy |
Page 10
The nominating committee also considers the needs of the board in accounting and finance, business
judgment, management, industry knowledge, leadership and such other areas as the board deems
appropriate. The committee further considers factors included in the Corporate Governance
Guidelines that might preclude nomination or re-nomination.
In particular, the nominating committee seeks to support our unique, agent-centered business model.
The committee believes that the board should include a variety of individuals, serving alongside
independent insurance agents who bring a special knowledge of policyholders and agents in the
communities where we do business.
Potential board nominees generally are identified by referral. The nominating committee follows a
five-part process to evaluate nominees for director. The committee first performs initial screening
that includes reviewing background information on the candidates, evaluating their qualifications
against the criteria set forth in the companys Corporate Governance Guidelines and, as the
committee believes is appropriate, discussing the potential candidates with the individual or
individuals making the referrals. Second, for candidates who qualify for additional consideration,
the committee interviews the potential nominees as to their background, interests and potential
commitment to the company and its operating philosophy. Third, the committee may seek references
from sources identified by the candidates as well as sources known to the committee members.
Fourth, the committee may ask other members of the board for their input. Finally, the committee
develops a list of nominees who exhibit the characteristics desired of directors and satisfy the
needs of the board. In 2008, the committee recommended that Kenneth W. Stecher be appointed a
director as he was promoted to president and chief executive officer of the company. Using these
factors, the committee also recommended that all of the directors with terms expiring in 2009 stand
for re-election to the board, including Mr. Benoski. Although the age guideline might suggest that
Mr. Benoski would not stand for re-election, the committee determined that re-election for a
one-year term would be beneficial because of his deep knowledge of the company and attendant
ability to assist the new management team.
The nominating committee considers qualified candidates referred by shareholders for nomination as
director. Information about such a candidate should be provided in writing to the secretary of the
company, giving the candidates name, biographical data and qualifications, and emphasizing the
characteristics set forth in our Corporate Governance Guidelines available on our Web site at
www.cinfin.com. Preferably, any such referral would contain sufficient information to enable the
committee to preliminarily screen the referred candidate for the needs of the board, if any, in
accounting and finance, business judgment, management, industry knowledge, leadership, and the
boards independence requirements. Such information should be provided by August 1 to receive
appropriate consideration for the annual meeting held in the following year. The nominating
committee does not differentiate among candidates based on the source of the nomination. Since the
2008 annual shareholders meeting, no fees were paid to any third party to identify, evaluate, or
assist in identifying and evaluating potential nominees.
Certain Relationships and Transactions
The audit committee follows a written policy for review and approval of transactions involving the
company and related persons, defined as directors and executive officers or their immediate family
members, or shareholders owning 5 percent or greater of our outstanding stock. The policy covers
any related transaction that meets the minimum threshold for disclosure in the proxy statement
under the relevant SEC rules, generally transactions involving amounts exceeding $120,000 in which
a related person has a direct or indirect material interest.
As it examines individual transactions for approval, the committee considers:
|
|
Whether the transaction creates a conflict of interest or would violate the companys Code
of Conduct |
|
|
|
Whether the transaction would impair the independence of a director |
|
|
|
Whether the transaction would be fair |
|
|
|
Any other factor the committee deems appropriate |
Page 11
Consideration of transactions with related parties is a regular item on the audit committees
agenda. Most of the transactions fall into the categories of standard agency contracts with
directors who are principals of independent insurance agencies that sell our insurance products or
with directors and executive officers who purchase the companys insurance products on the same
terms as such products are offered to the public. Because the committee does not believe these
classes of transactions create conflicts of interest or otherwise violate our Code of Conduct, the
committee deems such transactions pre-approved.
The following transactions in 2008 with related persons were determined to pose no actual conflict
of interest and were approved by the committee pursuant to its policy:
John J. Schiff, Jr. is chairman of the board of Cincinnati Financial Corporation, and all its
subsidiaries in 2008 except CinFin Capital Management Company. He and Thomas R. Schiff, also a
director of Cincinnati Financial Corporation, are principal owners and directors of John J. &
Thomas R. Schiff & Co. Inc., a privately owned insurance agency that represents a number of
insurance companies, including our insurance subsidiaries. Our insurance subsidiaries paid John J.
& Thomas R. Schiff & Co. Inc. commissions of $4,990,821. The company purchased various insurance
policies through John J. & Thomas R. Schiff & Co. Inc. for premiums totaling $1,480,524. John J. &
Thomas R. Schiff & Co. Inc. purchased group health coverage from our life insurance subsidiary for
a premium of $123,361 and paid rent to the company in the amount of $122,445 for office space
located in the headquarters building.
Douglas S. Skidmore is a director of Cincinnati Financial Corporation and principal owner,
director, chief executive officer and president of Skidmore Sales & Distributing Company Inc.,
which purchased property, casualty and life insurance from our insurance subsidiaries for premiums
totaling $313,899.
John F. Steele, Jr. is a director of Cincinnati Financial Corporation and chairman and chief
executive officer of Hilltop Basic Resources Inc., which purchased property casualty insurance from
our insurance subsidiaries for premiums totaling $358,974.
Larry R. Webb is a director of Cincinnati Financial Corporation and president, director and a
principal owner of Webb Insurance Agency Inc., a privately owned insurance agency that represents a
number of insurance companies, including our insurance subsidiaries. The companys insurance
subsidiaries paid Webb Insurance Agency Inc. commissions of $700,302.
A brother of Timothy L. Timmel, senior vice president of operations of the companys insurance
subsidiaries, is a secretary of the companys property casualty insurance subsidiary and manager of
workers compensation claims in the Headquarters Claims department with 31 years of experience in
both the Field Claims and Headquarters Claims departments. In 2008, Mr. Timmels brother earned
compensation consisting of salary, cash bonus, stock-based compensation and perquisites totaling
$165,287. The amount of compensation was established by the company in accordance with our
employment and compensation practices applicable to associates with equivalent qualifications and
responsibilities and holding similar positions.
Audit-Related Matters
Proposal 2 Managements Proposal to Ratify Appointment of the Independent Registered Public
Accounting Firm
The audit committee has appointed the firm of Deloitte & Touche LLP as the companys independent
registered public accounting firm for 2009. Although action by shareholders in this matter is not
required, the audit committee believes that it is appropriate to seek shareholder ratification of
this appointment and to seriously consider shareholder opinion on this issue.
Representatives from Deloitte & Touche LLP, which also served as the companys independent
registered public accounting firm for the last calendar year, will be present at the 2009 Annual
Meeting of Shareholders and will be afforded the opportunity to make any statements they wish and
to answer appropriate questions.
To ratify the appointment of Deloitte & Touche LLP, a majority of votes cast at the meeting must be
voted for the proposal.
The board of directors recommends a vote FOR the proposal to ratify appointment of the independent
registered public accounting firm.
Page 12
Report of the Audit Committee
The audit committee is responsible for monitoring the integrity of the companys consolidated
financial statements, the companys system of internal controls, the qualifications and
independence of the companys independent registered accounting firm, the performance of the
companys internal audit department and independent registered accounting firm and the companys
compliance with certain legal and regulatory requirements. The committee has sole authority and
responsibility to select, determine the compensation of, and evaluate the companys independent
registered accounting firm. The committee has six independent directors and operates under a
written charter. The board has determined that each committee member is independent under the
standards of director independence established by the NASDAQ listing requirements and is also
independent for purposes of Section 10A(m)(3) of the Exchange Act.
Management is responsible for the financial reporting process, including the system of internal
controls, for the preparation of consolidated financial statements in accordance with generally
accepted accounting principles and for the report on the companys internal control over financial
reporting. The companys independent registered public accounting firm is responsible for auditing
those financial statements and expressing an opinion as to their conformity with accounting
principles generally accepted in the United States of America. The committees responsibility is to
oversee and review the financial reporting process and to review and discuss managements report on
the companys internal control over financial reporting. However, the committee is not
professionally engaged in the practice of accounting or auditing and does not provide any expert or
special assurance as to such financial statements concerning compliance with laws, regulations or
generally accepted accounting principles or as to auditor independence. The committee relies,
without independent verification, on the information provided to it and on the representations made
by management and the independent registered accounting firm.
The committee reviewed and discussed the audited consolidated financial statements for the fiscal
year ended December 31, 2008, with management, the internal auditors and Deloitte & Touche LLP. The
committee also discussed with management, the internal auditors and Deloitte & Touche LLP the
process used to support certifications by the companys chief executive officer and chief financial
officer that are required by the SEC and the Sarbanes Oxley Act of 2002 to accompany the companys
periodic filings with the SEC and the processes used to support managements annual report on the
companys internal controls over financial reporting.
The committee also discussed with Deloitte & Touche LLP matters that independent registered public
accounting firms must discuss with audit committees under generally accepted auditing standards and
standards of the Public Company Accounting Oversight Board (PCAOB), including, among other things,
matters related to the conduct of the audit of the companys consolidated financial statements and
the matters required to be discussed by Auditing Standards No. 61, as modified or supplemented
(AICPA, Professional Standards, Vol. 1. AU Section 380), as adopted by the PCAOB in Rule 3200T. The
committee has received the written disclosures and the letter from Deloitte & Touche LLP required
by applicable requirements of the PCAOB regarding its communications with the committee concerning
independence, and has discussed with Deloitte & Touche, their independence from the company. When
considering Deloitte & Touche LLPs independence, the committee considered whether services it
provided to the company beyond those rendered in connection with its audit of the companys
consolidated financial statements, and its reviews of the companys interim condensed consolidated
financial statements included in its Quarterly Reports on Form 10-Q compatible with maintaining its
independence. The committee also reviewed, among other things, the audit, audit-related and tax
services performed by, and the amount of fees paid for such services to Deloitte & Touche LLP. The
committee received regular updates on the amount of fees and scope of audit, audit-related and tax
services provided.
Based on the above-mentioned review and these meetings, discussions and reports, and subject to the
limitations on the committees role and responsibilities referred to above and in the committees
charter, the committee recommended to the board that the companys audited consolidated financial
statements for the fiscal year ended December 31, 2008, be included in the companys Annual Report
on Form 10-K. The committee also selected Deloitte & Touche LLP as the companys independent
Page 13
registered accounting firm for the fiscal year ending December 31, 2009, and is presenting the selection to
the shareholders for ratification.
Submitted by the audit committee:
William F. Bahl, Gregory T. Bier, Kenneth C. Lichtendahl (chair), Gretchen W. Price,
Douglas S. Skidmore and John F. Steele, Jr.
Fees Billed by the Independent Registered Public Accounting Firm
The audit committee engaged Deloitte & Touche LLP to perform an annual audit of the companys
financial statements for the year ended December 31, 2008.
|
|
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|
|
|
|
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|
Year Ended December 31, |
|
|
|
2008 |
|
|
2007 |
|
|
Audit Fees |
|
$ |
2,249,500 |
|
|
$ |
2,145,000 |
|
Audit-related Fees |
|
|
255,844 |
|
|
|
212,027 |
|
Tax Fees |
|
|
189,812 |
|
|
|
329,777 |
|
|
|
|
|
|
|
|
Deloitte & Touche LLP Total Fees |
|
$ |
2,695,156 |
|
|
$ |
2,686,804 |
|
|
|
|
|
|
|
|
Services Provided by the Independent Registered Public Accounting Firm
All services rendered by the independent registered public accounting firm are permissible under
applicable laws and regulations. In 2008 and 2007, all services rendered by the independent
registered accounting firm were pre-approved by the audit committee, and no fees were charged
pursuant to the de minimis safe harbor exception to the pre-approval requirement described in the
audit committee charter.
Under the pre-approval policy, the audit committee pre-approves specific services related to the
primary service categories of audit services, audit-related services, tax services, and other
services. A one-time pre-approval dollar limit for specified services related to a specific
primary category is established for the audit period. Examples of non-audit services specified
under the policy requiring pre-approval may include: financial and tax due diligence, benefit plan
audits, American Institute of Certified Public Accountants (AICPA) agreed upon procedures, security
and privacy control-related assessments, technology control assessments, technology quality
assurance, financial reporting control assessments, enterprise security architecture assessment,
tax controversy assistance (IRS examinations), sales tax and lease compliance, employee benefit
tax, tax compliance and support, tax research, corporate finance modeling assistance, and allowable
actuarial reviews and assistance.
Engagements for services falling below the dollar threshold approved for specified services may be
entered into with the consent of the chief financial officer. The committee must individually
approve engagements for permissible services not included in the pre-approval list or that exceed
the dollar threshold established for such services. All engagements are periodically reported to
the audit committee. Pursuant to the rules of the SEC, the fees billed by the independent
registered public accounting firm for services are disclosed in the table above.
Audit Fees These are fees for professional services performed by the independent registered
public accounting firm for the audit of the companys annual financial statements; audit of
internal control over financial reporting; review of financial statements included in our Form 10-K
and Form 10-Q filings; and services that are normally provided in connection with statutory and
regulatory filings or engagements.
Audit-related Fees These are fees for assurance and related services performed by the
independent registered public accounting firm that are reasonably related to the performance of the
audit or review of our financial statements. These services include employee benefit plan audits;
and information systems expense reviews.
Tax Fees These are fees for professional services performed by the independent registered public
accounting firm with respect to tax compliance and preparation including review of our tax returns
and related research as well as IRS audit assistance. In addition to these items, $4,064 of the tax
fees in 2008 were related to tax advice, planning or consulting for retired executives. Our independent
registered public accounting firm does not perform any tax shelter work on our behalf.
Page 14
Compensation of Named Executive Officers and Directors
Report of the Compensation Committee
The compensation committee reviewed and discussed the Compensation Discussion and Analysis with
management. Based on the review and discussions, the compensation committee recommended to the
board of directors that the Compensation Discussion and Analysis be included in the companys 2009
proxy statement.
Submitted by the compensation committee:
W. Rodney McMullen (chair), Gretchen W. Price and E. Anthony Woods
Compensation Committee Interlocks and Insider Participation
In 2008, Kenneth C. Lichtendahl, W. Rodney McMullen, Gretchen W. Price and E. Anthony Woods served
on the compensation committee. During the 2008 fiscal year, none of the compensation committee
members was an officer, employee or former officer of Cincinnati Financial Corporation.
Compensation Discussion and Analysis
The following discussion and analysis contains statements about individual and company performance
targets and goals. These targets and goals are disclosed in the limited context of Cincinnati
Financial Corporations compensation programs and should not be understood to be statements of
managements expectations, outlook, estimates of results or other guidance. We encourage investors
to read our 2008 Annual Report on Form 10-K for more comprehensive discussion of our expectations
for company performance, as well as factors we have identified as risks to our ability to achieve
our overall targets.
Introduction
The compensation committee of the board of directors (committee) is responsible for determining
compensation for the executive officers named in the Summary Compensation Table, Page 29 (named
executive officers).
In 2008, two events occurred that affected the executive officers we are required to include in our
compensation disclosure: first, a management transition that included naming a new chief executive
officer; second, a redesign of our retirement benefits program that permitted associates age 40 and
over to leave our defined benefit plan.
Two executive officers elected to leave the defined benefit plan, receiving a distribution of their
accumulated pension benefit that made them two of our most highly compensated executives for 2008.
The distribution adds to the required calculation of compensation for Summary Compensation Table,
while the corresponding change in actuarial accumulated pension benefits that offset that
distribution is not included in that calculation. Because this one-time event would cause a change
in the reported executive officers for one year, we expanded our disclosure to also include all six
executive officers that would have been disclosed absent this one-time pension plan event.
Executive Compensation Philosophy and Objectives
The U.S. property casualty insurance industry is a highly competitive marketplace with over 2,000
stock and mutual companies operating independently or in groups. We compete with these companies,
as well as companies offering surplus lines and life insurance, seeking to increase our share of
these multibillion-dollar markets. We market our products exclusively through independent insurance
agents. We set ourselves apart from other insurance companies by maintaining an agent-centered
focus and strategies that over the long term can lead to a property casualty written premium growth
rate that exceeds the industry average and generate consistent underwriting profit, and by
maintaining an investment philosophy that can drive investment income growth and lead to a total
return on our equity investment portfolio that exceeds the Standard & Poors 500s five-year
return.
Critical to our long-term success are highly experienced, dedicated and capable executives who can
manage our business day to day and who possess the vision to plan for and adjust to changes in the
market. It is also important that we nurture the capabilities of our emerging leaders to ensure
that we have an appropriate depth of executive talent.
Page 15
The committee endeavors to ensure that overall compensation paid to our executive officers is
appropriate and in line with our overall compensation objective to attract, motivate, reward and
retain the executive talent required to achieve the corporate objectives described above, with the
ultimate goal of increasing shareholder value. At the same time, the committee is careful to ensure
that compensation paid to executives is comparable with peers, that its decisions are transparent
and easily understood by all stakeholders, and that the elements of compensation employed are in
keeping with compensation paid to associates at all levels of the company, allowing for differences
due to level of responsibility and individual performance.
With this philosophy in mind, the committee applies certain fundamentals that are key
characteristics of our overall compensation program, including:
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|
We employ our executive officers at will, without severance agreements or employment
contracts; |
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|
|
We use non-incentive cash compensation (salary and variable compensation, also called
bonus) to provide adequate and stable compensation that can increase incrementally over time,
for all of our full-time associates, including the named executive officers. We retain the
flexibility to control expenses through the variable compensation component; |
|
|
|
We use incentive cash compensation (annual incentive bonus) sparingly and at reasonable
levels to reward superior short-term performance of certain named executive officers. It also
can provide the company an opportunity to increase the tax deductibility of named executive
officer compensation; |
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|
|
We use grants of stock options and performance-based restricted stock units to align
executive officer and shareholder financial interests and focus on the long term. We structure
overall compensation so that a significant portion of the named executive officers
compensation is realized only when we achieve certain performance measures and when our stock
price increases. Similarly, we use grants of stock options and service-based restricted stock
units for all of our other full-time salaried associates, giving associates an opportunity to build
wealth and encouraging them to make decisions in the best interest of the company as a whole
by linking their personal financial success with the companys success. We do not pay
dividends or dividend equivalents on unvested stock-based awards; |
|
|
|
We do not reprice options, exchange options or reset performance targets for incentive
compensation awards granted to any of our associates, including the named executive officers; |
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|
|
We rely on long-standing, consistently and appropriately applied practices with respect to
the timing and pricing of grants of stock-based compensation. When circumstances arise, such
as the employment of a new executive officer, we are careful to appropriately time and price
grants, if any, to such individuals; |
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|
|
We consider changes in levels of compensation when responsibilities change; |
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|
|
We consider competitive compensation practices and relevant factors without establishing
targets for total compensation at specific benchmark percentiles; |
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|
|
We use processes that include committee review of peer group and internal performance data,
compensation practices and plans, and management recommendations based on evaluations of
individual and company performance; and |
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|
|
We do not pay tax gross-ups. |
Page 16
Overview of 2008 Compensation
Events and Decisions Affecting 2008 Compensation. The compensation disclosed for the named
executive officers for 2008 was affected by the following events and decisions:
|
|
Determination of base salary for 2008 made in November 2007 based on results and
performance through nine months of 2007 and determinations for base salary for 2009 and
variable compensation for 2008 based on results and performance through nine months of 2008.
(See Base Salary and Variable Compensation, Page 21); |
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|
|
Decision made in March 2008 not to pay annual incentive compensation awards earned upon
achievement of performance targets set for 2007 (See Annual Incentive Bonus, Page 22; |
|
|
|
Grant of stock options and performance-based restricted stock units in February 2008 and
November 2008 (See Long-Term Stock Based Compensation, Page 23); |
|
|
|
Mid-year management changes resulting in: |
|
|
|
Adjustments to salaries in mid-year for certain named executive officers with increased
responsibilities and |
|
|
|
|
Adjustments to the level of variable compensation awarded to Mr. Stecher and to the base
salary of Mr. Schiff in November 2008 (See Base Salary and Variable Compensation, Page
21); and |
|
|
Mid-year changes to the companys retirement benefits under which some named executive
officers elected to leave the companys defined benefit plan (See Retirement Benefits, Page
26); |
Changes to Compensation Performance Objectives, Plans and Practices in 2008. In 2008, the committee
determined that certain changes to compensation for named executive officers and directors were
appropriate. Some of these changes require shareholder approval of compensation plans and are the
subject of proposals for shareholder votes at the 2009 Annual Meeting of Shareholders. Others were
implemented with a view to more closely align performance objectives with company long-term goals.
Key among these changes are:
|
|
Updating objectives for performance-based restricted stock units for awards made in
November 2008 and going forward to total shareholder return compared to peers from internal
operating income target (See Long-Term Stock Based Compensation, Page 23); |
|
|
|
Elimination of stock-based compensation grants for 2009 due to grants made in November 2008
(See Long-Term Stock Based Compensation, Page 23); |
We have also proposed:
|
|
Changes for 2009 and beyond to the Annual Incentive Compensation Plan to include more
flexibility in selecting performance objectives to incent particular short-term performance
and introduce forfeiture and recoupment provisions (See Annual Incentive Bonus, Page 22 ); |
|
|
|
Changes for 2009 and beyond to director compensation to include reduction of cash retainer
to $25,000 from $50,000, and restrictions on an increased level of stock issued to directors
(See Director Compensation, Page 39). |
Compensation Practices and Policies
Role of executive officers. Our chief executive officer makes recommendations to the committee for
base salary, variable compensation and stock-based compensation. Supporting these recommendations
are his assessment of each individuals performance and current compensation compared with changes
in responsibilities during the year, if any, and his assessment of what the company can afford to
pay based on the performance of the company in the current year. Additionally, our chief executive
officer provides the committee with historical compensation data sheets for each executive officer
containing all elements of compensation paid to each executive officer, and pro forma compensation
disclosure tables for all executive officers, similar to those included in this proxy statement, as
well as comparative performance and compensation data compiled by Equilar Inc., an independent
subscription service that automates the collection of such information.
Page 17
Role of committee. The committee makes the final determination of base salary, variable
compensation and awards of incentive and stock-based compensation for the chief executive officer
and for each of the other named executive officers. The committee takes into account the
recommendations of the chief executive officer regarding the other named executive officers,
compensation history data sheets for each named executive officer and peer group performance and
compensation data accumulated through Equilar.
The committee meets in the fourth quarter of each calendar year to set variable compensation awards
for the current year and salaries for the upcoming year. It generally meets in the first quarter of
the calendar year to grant stock-based and incentive compensation awards and consider the payment
of any incentive compensation earned upon satisfaction of performance goals established in the
prior years incentive compensation award grant. The committee also may meet during the year to set
or adjust compensation appropriately if management changes or new officers join the company.
The committee considers its own experience with and information received from and about the named
executive officers, including:
|
|
Interactions of the board and its committees with the named executive officers. The chief
executive officer and chief financial officer regularly attend board meetings and provide
commentary on activities of the company as well as their areas of responsibility. Other named
executive officers in operating positions make presentations to the board and otherwise have
contact with board members from time to time. |
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The chief executive officers ongoing reports to the board and its committees about
individual named executive officer activities and performance. |
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Business results and business unit results, including reports: |
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|
filed with the SEC, |
|
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|
|
provided regularly to the board by management, including non-public financial, insurance and
investment performance summaries, and |
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|
|
provided to the board on an as-needed or as-requested basis. |
The committee also informally considers specific financial and operational metrics for business
segments, business units and other subsets of the organization. Management monitors and provides
these reports to the directors, including committee members, on an ongoing basis. This information
is shared with the board and the committee through a variety of channels. For example:
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|
Comparisons of growth, profitability and selected other trends to averages for the entire
property casualty industry or major subsets, such as our peer group or the average for the
commercial or personal lines insurance segments presented in our public filings. For statutory
data, we most frequently rely on data prepared by A.M. Best Co., a worldwide insurance-rating
and information agency. For data based on GAAP, in 2006 we began to use information provided
by SNL Financial LLC, a sector-specific information and research firm in the financial
information marketplace. |
|
|
|
Reports from and board discussions with our planning and risk
management officer regarding progress
toward achievement of our corporate strategic goals. |
|
|
|
Reports and board discussions with executive officers responsible for broad areas of our
insurance, investment and operational activities, including our named executive officers,
about managements assessment of business unit and overall industry trends based on a variety
of data monitored by the business units. |
The committee does not have a pre-defined formula that determines which of these factors may be
more or less important, and the emphasis placed on specific factors may vary among the named
executive officers. Ultimately, it is the committees judgment of these factors, in its normal
deliberations and in executive session, along with competitive data and discussions with and
recommendations from the chief executive officer, that form the basis for determining the
compensation for the named executive officers.
Page 18
Benchmarking, compensation consultants and peer groups. We believe our business philosophies and
strategies differentiate our company in many positive ways, while diminishing comparability to
industry peer groups. Except for establishing targets for performance-based compensation under
certain incentive plans, we do not tie compensation at any level to specific benchmarks or
formulas.
We believe the levels of compensation we provide should be competitively reasonable and appropriate
for our business needs and circumstances. Our approach is to consider competitive compensation
practices and relevant factors rather than establishing total compensation at specific benchmark
percentiles. This provides us with flexibility in maintaining and enhancing our executive officers
focus, motivation and enthusiasm for our future.
While we do not compare compensation of individual named executive officers with executives
carrying similar titles across a peer group, the committee informally reviews peer group
performance and compensation data to gain a sense of whether we are providing generally competitive
compensation for our named executive officers individually and as a group. Until 2008, the
committee monitored corporate performance and compensation levels for the named executive officers
of certain property casualty companies that were part of the Standard & Poors Composite 1500
Property & Casualty Insurance Index.
Over the last several years, the number of companies in the selected peer group decreased due to
merger and acquisition activity.
In November 2008, the committee expanded its peer group to include eight companies: The Chubb
Corporation, The Hanover Insurance Group Inc., Harleysville Group Inc., The Hartford Financial
Services Group Inc., Markel Corporation, Selective Insurance Group Inc., State Auto Financial
Corporation, and The Travelers Companies Inc. (Peer Group). Not all of these companies are included
in the Index.
These eight publicly traded companies were selected because they generally market their products
through the same types of independent insurance agencies that represent our company and they
provide both commercial lines and personal lines of insurance, as we do. We also included in the
new peer group a company that historically has followed an equity investment strategy similar to
ours and that offers surplus lines coverages, similar to the business we entered in 2008.
Comparative performance and compensation data reviewed by the committee suggests that the companys
executive compensation is at levels consistent with its performance as compared with the Peer
Group. The following table includes one-, three-, and five-year total shareholder returns as of
December 31, 2008 and compensation data compiled by Equilar from the 2008 proxy statements.
|
|
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|
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|
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One-Year |
|
Three-Year |
|
Five-Year |
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|
|
Total |
|
Total |
|
Total |
|
|
|
|
Market |
|
Shareholder |
|
Shareholder |
|
Shareholder |
|
Total Direct |
Rank |
|
Capitalization |
|
Return |
|
Return |
|
Return |
|
Compensation |
|
1
|
|
Travelers
|
|
State Auto
|
|
Harleysville
|
|
Harleysville
|
|
Travelers |
2
|
|
Chubb
|
|
Selective
|
|
Chubb
|
|
Chubb
|
|
Hartford |
3
|
|
Hartford
|
|
Harleysville
|
|
Hanover
|
|
Hanover
|
|
Chubb |
4
|
|
Cincinnati
|
|
Chubb
|
|
Selective
|
|
Selective
|
|
Selective |
5
|
|
Markel
|
|
Hanover
|
|
State Auto
|
|
State Auto
|
|
Hanover |
6
|
|
Hanover
|
|
Travelers
|
|
Travelers
|
|
Travelers
|
|
Markel |
7
|
|
Selective
|
|
Cincinnati
|
|
Markel
|
|
Markel
|
|
Cincinnati |
8
|
|
State Auto
|
|
Markel
|
|
Cincinnati
|
|
Cincinnati
|
|
Harleysville |
9
|
|
Harleysville
|
|
Hartford
|
|
Hartford
|
|
Hartford
|
|
State Auto |
As reported by Equilar, total direct compensation of $7,663,942 paid to our named executive
officers in 2007 was 36 percent of the average total direct compensation of $21,467,360 paid by
companies in the Peer Group to their named executive officers in the same year.
The committee does not employ compensation consultants for recommendations concerning executive
compensation. Our chief executive officer annually provides the committee with peer group
performance and compensation data collected by the chief financial officer from the Equilar service
and publicly available proxy statements and Form 10-K filings.
Page 19
Tax policies. Section 162(m) of the Internal Revenue Code limits to $1 million per year the federal
income tax deduction to public corporations for compensation paid for any fiscal year to any
individual who is identified as a named executive officer as of the end of the fiscal year in
accordance with the Exchange Act. This limitation does not apply to qualifying performance-based
compensation. Our committee designed our annual incentive compensation awards (which permit the
committee to exercise negative discretion to reduce or eliminate payment of awards as it did in
2008) and performance based restricted stock units to qualify for the performance-based
compensation exception to the $1 million limit. In addition, stock options are considered
performance-based compensation that qualify for the exception.
The committee believes that our shareholders are best served by not restricting our committees
discretion and flexibility in making compensation decisions, such as annual salaries, variable
compensation awards, service-based restricted stock units and similar non-performance based awards,
although some of these elements of compensation may from time to time result in certain
non-deductible compensation expenses. Accordingly, the committee may from time to time approve
compensation for certain named executive officers that are not fully deductible and reserves the
right to do so in the future, in appropriate circumstances.
In 2008, portions of the non-performance based compensation paid to Messrs. Stecher, Schiff and
Benoski were not tax deductible due to the value of de minimis perquisites and benefits and
adjustments in base salary and variable compensation awards in line with adjustments to salaries
and variable compensation awards for all of our exempt associates as a group. For information about
how 2008 salaries and variable compensation awards were determined, see Components of Compensation,
Base Salary and Variable Compensation, Page 21.
Employment agreements, change in control provisions and post-retirement benefits. We do not have
employment agreements with any of our named executive officers, who are all at-will employees. Our
long-standing corporate perspective has been that employment contracts do not provide the company
with any significant advantage. We believe our corporate culture, current compensation practices
and levels of stock ownership by our executive officers have resulted in stability in our current
15-member executive officer group, who average 25 years with the company.
Change in control provisions are included only in our 2006 Stock Compensation Plan, and that
provision applies to all associates receiving awards under the plan, not just to executive
officers. An identical change in control provision also is included in the proposed Annual
Incentive Compensation Plan of 2009. The change in control provisions in these plans contain a
double trigger, which requires both a change in control event, as defined in the plan, and
termination of the associates employment due to the change in control within a specified time
period. The double trigger ensures that we will become obligated to accelerate vesting of prior
awards only if the associate is actually or constructively discharged because of the change in
control event.
We occasionally provide post-retirement benefits to long-tenured, executive officer-level
associates who continue to provide services to the company after retirement from their executive
positions. These post-retirement benefits are intended to compensate the associate for ongoing
services associated with maintaining continuity of relationships and providing guidance to their
successors and other associates. We have no formal agreements with any of the current named
executive officers for specific post-retirement benefits upon their future retirement. However,
when a named executive officer retires, we may choose to provide him or her with modest cash
compensation, office space, access to administrative support, and continuation of certain health
and welfare benefits generally available to all associates in exchange for services rendered. In
2008, one associate who had previously retired from an executive position received one or more of
the described benefits at a total cost to the company of approximately $23,000. The company is
paying no post-retirement benefits to Mr. Benoski following his retirement from the companys
executive management in January 2009. Mr. Benoski will be paid director fees and a pro-rated cash
retainer for his service as an outside director in 2009. For information about compensation paid to
outside directors, see the 2008 Director Compensation table and accompanying disclosure beginning
on Page 39.
Page 20
Components of Compensation
The primary components of compensation are discussed below.
Base Salary and Variable Compensation. Non-incentive cash compensation for named executive officers
consists of base salary and variable compensation. Variable compensation is reported in the Summary
Compensation Table in the bonus column. Amounts shown as salary in the Summary Compensation Table
on Page 29 reflect adjustments to base salary made the preceding November as well as any
adjustments during the calendar year. Base salary reflects the requirements and responsibilities of
each officers particular role, the performance of his current responsibilities and market
conditions. Advancement in abilities, experience and responsibilities are recognized with increases
in base salary. Changes to variable compensation awards reflect base salary, length of service,
individual performance and company performance. While awards of variable compensation are
discretionary, we normally have not considered compensation in this form at risk. Variable
compensation is a tool available to the committee and to management, through its recommendation to
the committee, to control overall company compensation expense. In the last three years, increases
in variable compensation declined year over year, holding flat in 2008, after increasing 5 percent
and 7 percent in 2007 and 2006 respectively.
In practice, we evaluate each named executive officers base salary and variable compensation as a
unit. In 2008, non-incentive cash compensation, as a percentage of total direct compensation
(defined as the sum of salary, variable compensation and annual incentive compensation paid plus
grant date fair value of stock-based awards) averaged 63 percent for the named executive officers,
down from 78 percent in 2007 as increases in salary and variable compensation related to mid-year
management changes outpaced the value of nearly twice the historic annual level of stock-based
grants as the market value of the companys stock declined over the last year.
In November 2008, the committee increased annualized non-incentive cash compensation by 16 percent
over November 2007 levels for the group of eight named executive officers listed in the Summary
Compensation Table on Page 29 of this proxy statement. This overall increase was due to mid-year
base salary adjustments to Messrs. Stecher, Johnston, Scherer and Joseph in connection with
management changes and increased responsibilities occurring at that time. Except for Mr. Schiff,
whose base salary was reduced to $250,000 from $805,000 to reflect reduced responsibilities
following mid-year management changes, in November 2008 base annual salaries for all other named
executive officers were increased by 4 percent. At the same time, variable compensation for the
named executive officers was held flat, except for Mr. Stecher, whose variable compensation was
increased to reflect six months of performance in the office of president and chief executive
officer.
Decisions about salary and variable compensation awards for the named executive officers coincided
with decisions about the companywide salary and variable compensation pools. The committee
established these pools based on the companys 2008 financial results at nine months and projected
trends through the end of the year. The committee determined the 4 percent increase in the
companywide salary pool was appropriate based on the assumption that it was competitive with
general salary increases in the Cincinnati marketplace. It further determined that companywide pool
for variable compensation awards not be increased considering the disruption in financial markets
and the resulting reduction in the companys book value, but recognizing that excluding catastrophe
losses, the companys underwriting performance as measured by the calendar year combined ratio was
on par with the prior year.
In November of 2007, the committee increased non-incentive cash compensation over November 2006
levels by 4 percent to $4,800,520 for the named executive officers listed in the summary
compensation table of the companys 2008 proxy statement. Each named executive officers salary and
variable compensation award was increased by 4 percent and 5 percent respectively, coinciding with
increases in the companywide salary and variable compensation pool. The committee established these
pools based on the companys financial results at nine months and projected trends through the end
of the year. Satisfactory efforts to maintain profitability, increase new business and sustain
policyholder retention, tempered by the level of revenue and an expected reduction in book value at
year-end, led the committee to establish the pool for annual salary increases at the same rate as
in 2006 and to lower the rate of increase for the pool for awards of variable compensation to 5
percent in 2007 from 7 percent in 2006.
Page 21
In November 2006, the committee increased the sum of base salary and variable compensation over
November 2005 levels by 13 percent to $4,599,136 for the group of five named executive officers
listed in the Summary Compensation Table of the companys 2007 proxy statement. Within the group,
Mr. Schiff declined increases in salary or variable compensation award for 2006, while increases to
annualized cash compensation for Mr. Benoski and Mr. Stecher of 40 percent and 32 percent
respectively, substantially exceeded the average for the group due to mid-year compensation
adjustments for promotions and increased responsibilities.
Annual Incentive Bonus. Under the existing Incentive Compensation Plan, the five most highly
compensated named executive officers also are eligible to annually receive an award of up to $1
million in cash based on achievement of specific performance-based criteria. The compensation
committee is using this plan to provide the opportunity for a reasonable reward for superior
short-term performance of certain named executive officers and to provide the company an
opportunity to increase the tax deductibility of such compensation.
Under the plan, an incentive cash bonus is earned when the company achieves any two of the
following performance goals:
|
|
A specified percentage increase in gross direct written premiums for the calendar year over
those for the prior year (Gross direct written premium is insurance business written by our
independent insurance agencies. It does not include premiums from assumed or ceded business,
such as reinsurance or state pools, or premiums from annuities. The committee selected this
measure of premium growth because it demonstrates the success of our agency-centered business
activities); |
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|
|
A specified percentage increase in operating income for the calendar year over that of the
prior year. (In calculating the companys operating income, the effects of capital gains and
losses and accounting changes shall not be considered nor will losses attributable to
catastrophes that are assigned catastrophe numbers by the American Insurance Services Offices
(now known as the Property Claim Services (PCS) unit of ISO).) (Because accounting changes and
losses attributable to catastrophes are excluded from operating income as defined by the
Incentive Compensation Plan, this measure differs from the net income before realized
investment gains and losses or operating income measures that are provided in our quarterly
earnings releases and other shareholder communications and reconciled to GAAP under Regulation
G); |
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|
|
Exceeding the median annual percentage increase in earnings per share for the companys
peer group for the calendar year, including the effects of catastrophic losses, but excluding
the effects of capital gains and losses and accounting changes. (Earnings per share as defined
by the Incentive Compensation Plan is equivalent to the net income before realized investment
gains and losses before one-time items or operating income before one-time measures that
are provided in quarterly earnings releases and other shareholder communications and
reconciled to GAAP under Regulation G). |
These performance goals consider our key growth metric, property casualty insurance premiums, as
well as overall performance excluding items that can distort results in the short-term, such as
catastrophe losses, accounting changes and realized investment gains and losses. Exclusion of
certain items like realized investment gains also eliminates the opportunity for named executive
officers to make investment decisions they otherwise would not make merely to achieve payouts of
awards, while exclusion of items like catastrophe losses from certain performance goal definitions
focuses the named executive officers attention on appropriate events that are within their ability
to control.
Under the current plan, the target for payout is achievement of two of the three goals. The
committee believes that the cyclical nature of the insurance business could result in years in
which one of the goals may not be met, but the company may nevertheless produce superior
performance for which it wishes to award incentive bonuses based on its achievement of the other
two goals. For instance, when direct written premium growth is difficult to achieve, the company
may write very profitable business and otherwise operate its business to satisfy or exceed targets
for operating income and earnings per share compared with the peer group. The two out of three
target permits the annual incentive compensation award to be flexible and incent the named
executive officer throughout all phases of the market cycle.
Page 22
At the same time, requiring achievement of two-of-three performance goal helps ensure that the
individual named executive officer is not encouraged to expose the company to excessive risk in one
area of performance to achieve an incentive bonus payout without regard to counterbalancing
performance objectives.
The level of award determined for incentive compensation grants under the plan is the maximum
amount the committee may choose to pay if the two-of-three target is achieved. Historically, these
maximum award levels have been less than the named executive officers salary. These comparatively
low levels of awards also reduce the incentive for excessive risk taking, while providing an
opportunity for a meaningful compensation for achievement of short-term performance goals.
Payout of awards is a two-step process. No payment may be authorized if the target is not achieved.
If the target is achieved, the committee considers whether it will exercise its discretion to
reduce the amount of or eliminate the award for any named executive officer in light of factors the
committee deems appropriate, including each officers individual performance. Incentive bonuses
under the plan are paid as soon as practical after payment of the award is authorized by the
committee.
In March 2008, the committee measured the companys 2007 performance against the plan target for
awards granted in March 2007. The level of awards granted by the committee in March 2007 was
$400,000 for Mr. Schiff, $300,000 for Mr. Benoski, $150,000 for Mr. Stecher and $100,000 for Mr.
Scherer. Under the terms of the plan, which limited participation to the chief executive officer
and the four next highly compensated named executive officers as reported in the prior years proxy
statement, Mr. Joseph was ineligible for an award under the plan in 2007. The company did achieve
the performance target established for 2007 incentive compensation awards by achieving a 2.9
percent increase adjusted operating income against a goal of 1.5 percent, and achieving adjusted
earnings per share increase of 25.5 percent against the peer group median increase of 13.7 percent.
The company did not achieve the performance goal of increasing 2007 gross direct written premiums
by 1.5 percent. Although the performance target for 2007 annual incentive compensation awards was
achieved, the committee nevertheless exercised its negative discretion and reduced each of the
awards to zero, determining that compensation already paid to these four named executive officers
was appropriate in light of the individual performance of each and the overall performance of the
company.
In March 2008, the committee made grants under the Incentive Compensation Plan to be earned upon
achievement of the performance target established for 2008. Award levels were established at
$400,000 for Mr. Schiff, $300,000 for Mr. Benoski, $150,000 for Mr. Stecher and $100,000 each for
Mr. Scherer and Mr. Joseph. In setting the variable performance targets and amounts for the grants,
the committee considered the current salary and projected level of variable compensation for 2008
of each eligible named executive officer, industry trends and internal company projections for
premium growth and profitability. The company did not achieve the performance target established by
the committee as the companys adjusted gross written premiums declined 2.3 percent, exceeding the
targeted decline of less than 1.5 percent and adjusted operating income declined 24.1 percent,
exceeding the targeted decline of less than 14 percent. Although not all information is yet
available to determine whether the companys earnings per share increase exceeded the median
earnings per share increase of the peer group, because two of the performance targets were not
achieved, the awards were not earned.
In the first quarter of 2009, the committee intends to consider annual incentive compensation
awards to eligible named executive officers using one or more of the performance objectives
available under the amended and restated annual incentive compensation plan, subject to shareholder
approval at the 2009 Annual Meeting of Shareholders. In keeping with its past practice, the
committee intends to continue to disclose performance targets in awards granted under the new plan.
Primary differences between the existing plan and the new plan are the addition of a wider range of
performance objectives intended to focus the attention of named executive officers on short term
tactical actions believed to be important for achievement of longer
term strategic goals, and the
addition of a forfeiture and recoupment provision to enable the company to recover payments under
this plan when circumstances warrant.
Long-Term Stock-Based Compensation. We believe people tend to value and protect most that which
they have paid for, generally by investing their time, effort or personal funds. Over the long run,
we believe shareholders are better served when associates at all levels have a significant
component of their financial net worth invested in the company. For that reason, we grant awards of
stock-based compensation not only to our directors and to named executive officers, but also
generally to all
Page 23
full-time exempt associates of the company. We believe this approach encourages associates at all
levels to make decisions in the best interest of the company as a whole, linking their personal
financial success with the organizations success. Although we do not have access to information
about broker accounts, we estimate that approximately 90 percent of our current associates hold
shares of Cincinnati Financial Corporation. Stock ownership guidelines applicable to all directors
and officers will help the committee monitor ownership for all directors and officers. Our Director
and Officer Stock Ownership Guidelines may be found at www.cinfin.com/Investors.
We award stock-based compensation not only to reward service to the company, but also to provide
incentive for individuals to remain in the employ of the company and help it prosper. Over the last
three years, the grant date fair value of stock-based compensation has ranged from approximately 15
percent to 45 percent of the total amount of compensation set by the committee each year for named
executive officers (salary, variable compensation awards, incentive cash bonus, and stock-based
awards).
Until 2007, incentive stock-based awards were entirely in the form of stock options that vested in
equal amounts over the three years following the date of grant, supporting the companys long-term
focus. Beginning in 2007, awards of performance-based restricted stock units that cliff vest after
three years if performance targets are achieved were added to the mix of equity awards granted to
the named executive officers. Stock-based awards granted to all associates in any year generally
total less than 1.5 percent of total shares outstanding. In 2008, total stock-based awards granted
to the eight named executive officers represented approximately 14.2 percent of all equity grants
awarded that year and less than 0.2 percent of total shares outstanding.
Performance-based restricted stock units tie vesting of a portion of stock-based compensation to
performance goals and support the committees efforts to maximize the companys federal income tax
deduction for executive compensation. Stock options tie the compensation realized from such awards,
if any, to changes in the stock price experienced by shareholders generally.
The three-year performance period for awards of restricted stock units reinforces the companys
long-term focus and matches the period after which stock option awards are fully vested and
exercisable. If the restricted stock units vest, the award is paid in shares of common stock, one
share for each restricted stock unit. For performance-based restricted stock units, the committee
expects to set targets that it considers are achievable, but that will require a slight stretch,
based on market conditions and the current insurance industry environment at the time of grant.
Historically, the committee made decisions about stock-based compensation based on the number of
shares underlying the award, which remained constant year over year, rather than the cost of the
awards in any given year. See the discussion under Stock-Based Award Grant Practices beginning on
Page 26. With the introduction of the restricted stock units in 2007, the number of stock options
awarded was reduced to accommodate awards of restricted stock units. In determining the allocation
of 2007 stock-based compensation between stock options and restricted stock units, the committee
emphasized the following objectives:
|
|
Keep the overall cost to the company of stock-based compensation in line with the cost of
stock-based compensation comprised only of stock options, |
|
|
|
Continue to emphasize stock options that require associates to make a personal investment
upon exercise, and |
|
|
|
Award a sufficient number of restricted stock units that upon vesting will strengthen the
associates ability to collateralize loans to exercise stock options and ability to satisfy
applicable stock ownership guidelines. |
The committee made grants of stock-based awards in 2008. At its meeting on January 30, 2008, it
granted incentive stock options and service-based restricted stock units to all associates except
executive officers and certain other senior officers included in the group designated to receive
performance-based restricted stock units. Grants to that group, which included the named executive
officers, was deferred as the committee studied peer group and industry data to develop appropriate
performance targets and goals. At its meeting on February 18, 2008, the committee granted
stock-based awards in the form of both stock options and restricted stock units to that group,
including the named executive officers as follows: 30,000 nonqualified stock options and target
levels of 7,900 performance-based restricted stock
Page 24
units each to Messrs. Schiff and Benoski and 8,000 nonqualified stock options and target levels of
2,400 performance-based restricted stock units each to Messrs. Stecher, Joseph, Scherer, Timmel and
Popplewell.
Performance-based restricted stock units granted in February 2008 will vest according to the amount
of operating income achieved over the three calendar years ending December 31, 2010. Threshold,
target and maximum aggregate three-year performance targets of 285 percent, 300 percent and 315
percent of 2007 operating income were established for threshold, target and maximum awards of
6,320, 7,900 and 9,480 shares respectively for Messrs. Schiff and Benoski and 1,920, 2,400 and
2,880 shares respectively for Messrs. Stecher, Joseph, Scherer, Timmel and Popplewell. As with the
2007 performance-based restricted stock unit awards described below, the committee used the
definition for operating income set forth in the Incentive Compensation Plan, but amended that
definition to include an annual cap of 2.5 percent for the contribution of favorable development on
prior period reserves to address the atypically high level of favorable development in 2007.
At its meeting on June 14, 2008, the committee approved awards of 8,000 nonqualified stock options
and 2,400 performance-based restricted stock units for Mr. Johnston with a grant date of July 1,
2008, to coincide with the start of his employment as the companys new chief financial officer.
The performance-based restricted stock units were granted with the same terms and performance
objectives as described above for grants made in February 2008.
At its meeting on November 14, 2008, the committee granted stock-based awards in the forms of stock
options and restricted stock units to all associates, including awards to the named executive
officers as follows: 30,000 nonqualified stock options and target levels of 7,900 performance-based
restricted stock units each to Messrs. Stecher, Schiff and Benoski and 8,000 nonqualified stock
options and target levels of 2,400 performance based restricted stock units each for Messrs.
Johnston, Scherer, Joseph, Timmel and Popplewell. The committee decided to accelerate stock-based
compensation otherwise planned for January 2009 to tie them to management changes that occurred in
the middle of the year.
The performance-based restricted stock units granted in November 2008 will vest according to the
level of total shareholder return achieved over the three calendar years ending December 31, 2011.
Threshold, target and maximum aggregate three-year performance targets at the 25th,
50th and 75th percentiles of the peer groups total shareholder return were
established for threshold, target and maximum awards of 5,925, 7,900 and 9,875 shares respectively
for Messrs. Stecher, Schiff and Benoski and 1,800, 2,400 and 3,000 shares respectively for Messrs.
Johnston, Scherer, Joseph, Timmel and Popplewell. The committee changed performance objectives for
the November grants to three-year total shareholder return conditioning payout on overall company
performance compared with the peer group and further aligning the interests of the performance
group with the long-term interests of shareholders. See 2008 Grant of Plan-Based Awards, Page 31,
for details about these awards.
At its meeting on January 31, 2007, based on recommendations made by the chief executive officer
and the chief financial officer, the committee granted both stock options and restricted stock
units to the named executive officers as follows: 25,000 nonqualified stock options and 6,100
performance-based restricted stock units each to Messrs. Schiff and Benoski and 7,500 nonqualified
stock options and 1,850 performance-based restricted stock units each to Messrs. Stecher, Joseph,
Scherer, Timmel and Popplewell.
Under the terms of the 2007 awards of performance-based restricted stock units, the named executive
officers restricted stock units will vest on March 1, 2010, if the sum of operating income for
the three calendar years ending December 31, 2007, through December 31, 2009, equals or exceeds 315
percent of operating income for 2006. For these performance-based restricted stock unit awards, the
definition of operating income is the same as the definition of operating income in the Incentive
Compensation Plan discussed above.
Additionally, named executive officers are eligible to receive stock bonuses under the companys
broad-based Holiday Stock Bonus Plan, which annually awards one share of common stock to each
full-time associate for each year of service up to a maximum of 10 shares. This plan, in effect
since 1976, encourages stock ownership at all levels of the company.
Page 25
Stock-Based Award Grant Practices. In awarding stock options and other forms of stock-based
compensation, the committee follows certain general precepts:
|
|
Timing. The committee has historically granted stock-based compensation awards at
approximately the same date every year, at its first regularly scheduled meeting of the
calendar year. This meeting is scheduled to occur within the two weeks preceding the first
meeting of the board of directors that occurs in the last week of January or first week of
February each year. Although this schedule has led to stock-based grants during the period
immediately before the announcement of year-end results, the committee believes the
consistency of this practice eliminates concerns over the timing. When grants are made at any
other time of the year, the committee ensures that such grants are granted outside of any
regular trading blackout associated with the companys disclosure of financial results and
when the company is not otherwise in possession of material nonpublic information. |
|
|
|
Option Exercise Price. All stock-based compensation is granted at fair market value on the
date of grant. For stock-based awards in 2007 and 2008 under the 2006 Stock Compensation Plan
and Stock Option Plan VII, fair market value is defined as the average of the high and low
sale price on NASDAQ on the grant date. For stock options granted before 2007 under Stock
Option Plan VII and earlier plans, the fair market value is defined as the closing price on
NASDAQ on the business day prior to the grant date. Unless a future date is specified, the
grant date is the date of the committee meeting at which the grant is made. Fair market value
for awards under the 2003 Director Stock Plan and the Holiday Stock Bonus Plan is the average
of the high and low sale price on NASDAQ on the grant date. The committee does not delegate
timing or pricing of stock-based awards to management. |
|
|
|
Procedure. The chief executive officer recommends tiers of stock-based awards for each
level of responsibility throughout the organization, based on job titles. Managers participate
in the stock-based award process by confirming which full-time associates at each level they
believe should be eligible for a stock-based award. The number of shares may be adjusted for
individuals or groups after committee deliberations and ultimately is determined and granted
by the committee. The committee does not delegate authority to management to grant stock
options or other stock-based awards. |
Retirement Benefits. In 2008, the company transitioned away from providing associates with a
defined benefit pension plan, instead choosing to assist associates to build savings for retirement
by providing a company match of associate contributions to a tax qualified 401(k) plan. This change
was primarily in response to feedback from associates who wanted control over their retirement
benefit accounts. Participation in the defined benefit pension plan terminated for associates under
the age of 40, and they transitioned to the new tax qualified 401(k) plan with a company matching
contribution. None of the named executive officers is under age 40. Associates age 40 and over as
of August 31, 2008 were given a one-time election to remain in the defined benefit pension plan or
to leave the plan and participate in the 401(k) plan with a company match. Those associates leaving
the pension plan received distributions of their accumulated pension benefit from the defined
benefit plan that they could choose to receive in cash, roll over to the companys 401(k) plan or
roll-over to an Individual Retirement Account. Mr. Timmel and Mr. Popplewell elected to leave the
pension plan, roll-over their accumulated benefit to Individual Retirement Accounts and participate
in the 401(k) with the company match on a going forward basis. Mr. Johnston, hired after entry to
the pension plan was closed, also participates in the 401(k) plan with the company match. All other
named executive officers elected to remain in the pension plan.
Tax-qualified defined benefit pension plan. The Cincinnati Financial Corporation Retirement Plan
(Retirement Plan) is a tax-qualified defined benefit pension plan available to all full-time
associates ages 40 and over on August 31, 2008 who elected to remain in the plan effective
September 1, 2008. The Retirement Plan is closed to new participants. Members of the Retirement
Plan earn one year of service for each calendar year in which they work at least 1,000 hours.
Members also earn service for time that they are paid, or entitled to be paid, but do not actually
work. These times include vacation, holidays, illness and military duty and some periods of
disability. The maximum amount of service that may be earned under the Retirement Plan is 40 years.
Vesting is 100 percent after five years of service, and there are no deductions for Social Security
or other offset amounts.
Page 26
The Retirement Plan defines earnings for any given plan year as the base rate of salary in effect
on the last day of the plan year, subject to the maximum recognizable compensation under Section
401(a)(17) of the Internal Revenue Code. Bonuses, stock-based awards and other forms of
compensation do not contribute to earnings under the Retirement Plan.
Normal retirement age as defined in the Retirement Plan is age 65. The normal retirement pension is
computed as a single life annuity. The annual benefit payment is the greater of the following two
calculated amounts:
The first calculated amount is the sum of:
1. |
|
0.45 percent per year of the members highest five-year average earnings for the first 15
years of service, plus |
|
2. |
|
1.35 percent per year of the members highest five-year average earnings up to $35,000 for
the first 15 years of service, plus the sum of: |
|
a. |
|
0.6 percent per year of the members highest five-year average earnings for
years 16 through 40 plus |
|
|
b. |
|
1.8 percent of the members highest five-year average earnings up to $35,000
for years 16 through 40. |
The second calculated amount is the sum of:
1. |
|
0.9 percent per year of the members highest five-year average earnings for the first 15
years of service plus |
|
2. |
|
1.2 percent per year of the members highest five-year average earnings for years 16 through
40. |
The normal form of benefit payment under the terms of the Retirement Plan is a single life annuity
for unmarried members and a joint and 50 percent survivor annuity for married members. The plan
permits members to elect to receive payment of benefits in the following forms:
|
|
Single life only |
|
|
|
Single life only with 60-month or 120-month guarantee |
|
|
|
Joint and 50 percent contingent annuitant |
|
|
|
Joint and 66.67 percent contingent annuitant |
|
|
|
Joint and 100 percent contingent annuitant |
|
|
|
Lump sum |
Alternative forms of benefit payment are offered to provide plan members some flexibility in
retirement income and estate planning by giving them the option of electing monthly benefits with
or without a survivors benefit. Generally, the single life annuity alternative provides the
largest monthly benefit, but does not provide a survivors benefit. All other payment forms are the
actuarial equivalent of the single life annuity alternative. Alternatives other than the single
life annuity provide slightly lower monthly benefits to the plan member, depending on such factors
as presence of survivors benefit, the members age and any contingent annuitants age. The lump
sum payment permits plan members to roll the present value of their benefit into an Individual
Retirement Account and defer income taxes until the member withdraws funds from that account.
Supplemental Retirement Plan. The second retirement plan in which some named executive officers
participate is The Cincinnati Financial Corporation Supplemental Retirement Plan (SERP).
The SERP is unfunded and subject to forfeiture in the event of bankruptcy.
The SERP is a non-tax-qualified plan maintained by the company to pay eligible associates the
difference between the amount payable under the tax-qualified plan and the amount they would have
received without the tax-qualified plans limit due to Section 401(a)(17) and Section 415 of the
Internal Revenue Code. Accordingly, the SERP definitions for service, normal retirement and annual
earnings are the same as those for the Retirement Plan except the SERPs definition of annual
earnings is not limited, and there is no limit on number of years of service.
Page 27
The SERP is integrated with Social Security. The integration level is equal to the average of the
integration levels for the period of the members employment, using wages paid, with a maximum of
$6,000 for years beginning before 1976 and wages subject to Social Security tax for all years after
1976.
The pension benefit under the SERP is payable only in the form of a single lump sum. The normal
retirement pension benefit for current members of the SERP is the sum of 0.75 percent of the
members highest five-year average annual earnings below the integration level plus 1.25 percent of
the members highest five-year average annual earnings in excess of the integration level,
multiplied by the number of years of service, minus the pension benefit payable from the Retirement
Plan.
All of the named executive officers who participate in the SERP were members of the SERP on or
before January 1, 2006. For members added to the SERP on or after December 1, 2006, the normal
retirement benefit under the SERP will be equal to the excess of the members monthly benefit under
the Retirement Plan as of the members retirement date, without regard to the limit on earnings
under Section 401(a)(17) of the Internal Revenue Code and without regard to any limit on benefits
under Section 415 of the Internal Revenue Code over the members monthly benefit payable under the
Retirement Plan as of the members retirement date. Participation in the SERP terminated for
Messrs. Timmel and Popplewell on December 31, 2008. Amounts equivalent to the calculated accrued
benefit under the SERP will be transferred in early 2009 to their respective Top Hat Savings Plan
accounts where they may allocate investment of these amounts among the investment alternatives
approved for that plan.
Both retirement plans permit early retirement between age 60 and age 65, provided the member has at
least five years of service. Benefits for early retirement are calculated by adjusting for life
expectancy and reducing the benefit payable at age 65 by 0.5 percent per month for each month prior
to age 65 that the member elects to begin receiving pension benefits. For example, if a member
elects to retire at age 60, he would receive 70 percent (60 months X 0.5 percent = 30 percent
reduction) of the life-expectancy adjusted benefit payable at age 65.
Actuarial work related to both the Retirement Plan and SERP is performed by Towers Perrin, which
provides human resource strategy, design and management; actuarial and management consulting to the
financial services industry; and reinsurance intermediary services. The committee engaged Towers
Perrin to provide actuarial and consultative services related to the design of the companys
retirement and employee benefit plans. Towers Perrin also brokers our property casualty and certain
working reinsurance treaties, and we have used Towers Perrin for various projects, including access
to catastrophe loss modeling.
Members of the SERP are added to the plan by the committee, acting upon the recommendation of the
chief executive officer. Messrs. Stecher, Scherer, and Joseph were added to the SERP effective
January 1, 2006, because the benefits they could receive under the Retirement Plan were limited by
the application of Section 401(a) and Section 415 of the Internal Revenue Code.
Defined contribution plans. The company sponsors a tax qualified 401(k) savings plan for all
associates as well as the Cincinnati Financial Corporation Top Hat Savings Plan, a deferred
compensation plan for certain highly compensated associates. The company made no cash contributions
to the 401(k) or Top Hat plans until September 2008. In connection with retirement benefit plan
changes effective September 1, 2008, the company began to match contributions to the 401(k) plan
made by associates who were not members of the Retirement Plan, up to a maximum of 6 percent of the
associates annual cash compensation (salary and variable compensation award). Participants in the
Top Hat savings plan do not receive a matching contribution from the company unless their
compensation level exceeds the maximum recognizable compensation under Section 401(a)(17) of the
Internal Revenue Code, which for 2008 was $235,000. To provide the same 6 percent matching
contribution benefit to associates at all levels of the company, beginning in 2009 the company is
matching associate contributions to the Top Hat Savings Plan up to a maximum under both plans of 6
percent of the officers annual cash compensation including those officers who reached the maximum
contribution allowable in the tax qualified 401(k) plan because of their level of compensation.
Contributions made by associates immediately vest, while company
matching contributions vest with
three years of service.
Page 28
Perquisites and Other Personal Benefits. Perquisites and other personal benefits are intended to
support our corporate objectives or the performance of an individuals responsibilities. The
perquisites and personal benefits offered to the named executive officers, and generally to all of
the companys officers, consist of personal umbrella liability insurance coverage, life insurance,
executive tax services, use of a company car, safe driver award, executive health exams, club dues
and spouse travel to and meals associated with certain business functions. Management is
responsible for administering these programs. From time to time, the committee reviews these
programs and may recommend changes or additions. The committee reviews the types and level of
perquisites offered but does not control directly the actual amounts of named executive officer
compensation paid pursuant to these programs.
The committee believes that the level of perquisites and personal benefits we offer our officers is
de minimis (totaling no more than $12,924 for any named executive officer in 2008). Because the
level of perquisites is low and each perquisite has business value, the committee does not consider
them when monitoring total compensation levels.
Summary Compensation Table
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non- |
|
|
Pension Value |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity |
|
|
and Non- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive |
|
|
qualified |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Plan |
|
|
Deferred |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
Option |
|
|
Compen- |
|
|
Compensation |
|
|
All Other |
|
|
Total |
|
|
|
|
|
|
|
Salary |
|
|
Bonus |
|
|
Awards |
|
|
Awards |
|
|
sation |
|
|
Earnings |
|
|
Compensation |
|
|
Compensation |
|
Name and Principal Position |
|
Year |
|
|
($) |
|
|
($) |
|
|
($) (1) |
|
|
($) (2) |
|
|
($) |
|
|
($) (3) |
|
|
($) |
|
|
($) |
|
Kenneth W. Stecher |
|
|
2008 |
|
|
$ |
657,730 |
|
|
$ |
426,060 |
|
|
$ |
7,818 |
|
|
$ |
232,912 |
|
|
|
|
|
|
$ |
317,889 |
|
|
$ |
9,280 |
(4) |
|
$ |
1,651,689 |
|
Chief Executive Officer and |
|
|
2007 |
|
|
|
553,963 |
|
|
|
352,119 |
|
|
|
75,692 |
|
|
|
80,988 |
|
|
|
|
|
|
|
352,143 |
|
|
|
9,908 |
|
|
|
1,424,813 |
|
President
Cincinnati Financial Corporation |
|
|
2006 |
|
|
|
445,842 |
|
|
|
335,351 |
|
|
|
452 |
|
|
|
430,095 |
|
|
|
|
|
|
|
914,825 |
|
|
|
9,649 |
|
|
|
2,136,214 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Schiff, Jr. |
|
|
2008 |
|
|
|
762,308 |
|
|
|
447,037 |
|
|
|
7,818 |
|
|
|
634,169 |
|
|
|
|
|
|
|
215,294 |
|
|
|
6,218 |
(4) |
|
|
2,072,844 |
|
Chairman of the Board and |
|
|
2007 |
|
|
|
777,308 |
|
|
|
447,037 |
|
|
|
74,266 |
|
|
|
554,382 |
|
|
|
|
|
|
|
262,699 |
|
|
|
5,219 |
|
|
|
2,120,911 |
|
former Chief Executive Officer
Cincinnati Financial Corporation |
|
|
2006 |
|
|
|
775,000 |
|
|
|
425,750 |
|
|
|
452 |
|
|
|
666,042 |
|
|
|
|
|
|
|
340,695 |
|
|
|
6,070 |
|
|
|
2,214,009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Johnston |
|
|
2008 |
|
|
|
193,539 |
|
|
|
175,000 |
|
|
|
2,291 |
|
|
|
7,737 |
|
|
|
|
|
|
|
|
|
|
|
11,437 |
(4)(7) |
|
|
390,004 |
|
Chief Financial Officer
Cincinnati Financial Corporation |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Benoski |
|
|
2008 |
|
|
|
685,237 |
|
|
|
479,154 |
|
|
|
7,818 |
|
|
|
408,861 |
|
|
|
|
|
|
|
271,903 |
|
|
|
8,214 |
(4) |
|
|
1,861,187 |
|
Vice Chairman of the Board and |
|
|
2007 |
|
|
|
658,882 |
|
|
|
479,154 |
|
|
|
248,674 |
|
|
|
269,872 |
|
|
|
|
|
|
|
320,303 |
|
|
|
9,568 |
|
|
|
1,986,453 |
|
former President
Cincinnati Financial Corporation |
|
|
2006 |
|
|
|
500,709 |
|
|
|
456,337 |
|
|
|
452 |
|
|
|
1,373,420 |
|
|
|
|
|
|
|
147,682 |
|
|
|
7,873 |
|
|
|
2,486,473 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. |
|
|
2008 |
|
|
|
442,626 |
|
|
|
380,632 |
|
|
|
(19,804 |
) |
|
|
113,342 |
|
|
|
|
|
|
|
122,145 |
|
|
|
14,137 |
(5) |
|
|
1,053,078 |
|
Executive Vice President |
|
|
2007 |
|
|
|
411,090 |
|
|
|
380,632 |
|
|
|
22,770 |
|
|
|
175,085 |
|
|
|
|
|
|
|
139,082 |
|
|
|
14,263 |
|
|
|
1,142,922 |
|
The Cincinnati Insurance Company
|
|
|
2006 |
|
|
|
367,843 |
|
|
|
362,507 |
|
|
|
452 |
|
|
|
208,542 |
|
|
|
|
|
|
|
415,387 |
|
|
|
14,565 |
|
|
|
1,369,296 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Joseph |
|
|
2008 |
|
|
|
404,192 |
|
|
|
274,991 |
|
|
|
(19,804 |
) |
|
|
113,342 |
|
|
|
|
|
|
|
114,625 |
|
|
|
8,288 |
(4) |
|
|
895,634 |
|
President |
|
|
2007 |
|
|
|
364,459 |
|
|
|
274,991 |
|
|
|
22,770 |
|
|
|
175,085 |
|
|
|
|
|
|
|
139,437 |
|
|
|
12,111 |
|
|
|
988,853 |
|
The Cincinnati Casualty Company
and Senior Vice President |
|
|
2006 |
|
|
|
323,105 |
|
|
|
261,896 |
|
|
|
452 |
|
|
|
208,542 |
|
|
|
|
|
|
|
459,641 |
|
|
|
12,742 |
|
|
|
1,266,378 |
|
The Cincinnati Insurance Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Timmel |
|
|
2008 |
|
|
|
379,196 |
|
|
|
148,827 |
|
|
|
2,563 |
|
|
|
109,026 |
|
|
|
|
|
|
|
|
|
|
|
976,675 |
(4)(6)(7) |
|
|
1,616,287 |
|
Senior Vice President
The Cincinnati Insurance Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Popplewell |
|
|
2008 |
|
|
|
349,919 |
|
|
|
210,006 |
|
|
|
2,563 |
|
|
|
111,855 |
|
|
|
|
|
|
|
|
|
|
|
311,560 |
(4)(6)(7) |
|
|
985,903 |
|
President and
Chief Operating Officer
The Cincinnati Life
Insurance Company |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Page 29
|
|
|
(1) |
|
Amounts shown in this column reflect amounts expensed during the year for
stock awards under the Holiday Stock Bonus Plan and restricted stock units under
the 2006 Stock Compensation Plan. Awards under the Holiday Stock Bonus Plan are
valued at full market value, determined by the average of the high and low sales
price on NASDAQ on the date of grant, multiplied by the number of shares. The per
share fair market values were $27.18, $40.39 and $45.24 for the grant dates of
November 26, 2008, November 21, 2007, and November 22, 2006, respectively. There
are no awards of restricted stock units in 2006. Assumptions used in the valuation
of restricted stock units are disclosed in our 2008 Annual Report on Form 10-K,
Part II, Item 8, Note 17, Page 117. There are no forfeitures of stock or restricted
stock unit awards in 2008, 2007 or 2006. |
|
(2) |
|
Assumptions used in the valuation of option awards are disclosed in our
2008 Annual report on Form 10-K, Part II, Item 8, Note 17, Page 117. There were no
forfeitures of option awards in 2008, 2007 or 2006. Option awards were canceled in
2008 due to expiration of the unexercised grant as follows: 6,007 for Mr. Stecher;
126,788 for Mr. Schiff; 27,563 each for Messrs. Scherer, Timmel and Popplewell; and
3,308 for Mr. Joseph. |
|
(3) |
|
No preferential earnings were paid on deferred compensation in 2008.
Amounts in this column reflect changes in values of actuarially calculated
accumulated benefit in the companys Retirement Plan and SERP as follows: |
|
|
|
For Mr. Stecher, an increase of $1,616 for Retirement Plan and an increase of
$316,273 for SERP |
|
|
|
For Mr. Schiff, an increase of $51,771 for Retirement Plan and an increase of
$163,523 for SERP |
|
|
|
For Mr. Benoski, an increase of $101,117 for Retirement Plan and an increase of
$170,786 for SERP |
|
|
|
For Mr. Scherer, an increase of $34,034 for Retirement Plan and an increase of
$88,111 for SERP |
|
|
|
For Mr. Joseph, an increase of $34,346 for Retirement Plan and an increase of
$80,279 for SERP |
|
|
|
For Mr. Timmel, a decrease of $1,100,132 for Retirement Plan and an increase of
$25,543 for SERP |
|
|
|
For Mr. Popplewell, a decrease of $272,965 for Retirement Plan and an increase
of $22,744 for SERP. |
|
|
|
Messrs. Timmel and Popplewell ceased participation in the Retirement Plan effective
August 31, 2008, and ceased accumulating benefit under the SERP effective December
31, 2008. |
|
(4) |
|
Includes perquisites in an aggregate amount less than $10,000 for one or
more of the types described in Perquisites and Other Personal Benefits, Page 29. |
|
(5) |
|
Includes $4,590 for expenses associated with spouse travel to business
events that provide opportunities for company representatives and agents to
interact; $3,773 annual business club dues; $2,735 for personal use of company car;
premiums paid for officer life and personal umbrella insurance policies; executive
health examination; and a safe driver award. |
|
(6) |
|
Includes the present value of accumulated pension benefit obligation
distributed and rolled over to personal IRAs in connection with termination of
participation in the companys defined benefit plan in the amounts of $963,153 for
Mr. Timmel and $296,298 for Mr. Popplewell. |
|
(7) |
|
Includes matching contributions to the companys 401(k) plan in the amounts
of $9,837 for Mr. Johnston; $4,906 for Mr. Timmel; and $7,334 for Mr. Popplewell. |
Page 30
2008 Grant of Plan-Based Awards (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock |
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Possible |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Awards: |
|
|
Option |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payouts Under |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number |
|
|
Awards: |
|
|
|
|
|
|
Grant date |
|
|
|
|
|
|
|
Non-Equity |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
of Share |
|
|
Number of |
|
|
Exercise or |
|
|
fair value of |
|
|
|
|
|
|
|
Incentive Plan |
|
|
Estimated Possible Payouts Under |
|
|
of Stock |
|
|
Securities |
|
|
Base Price |
|
|
stock and |
|
|
|
|
|
|
|
Awards |
|
|
Equity Incentive Plan Awards |
|
|
or Units |
|
|
Underlying |
|
|
of Option |
|
|
option awards |
|
|
|
|
|
|
|
Target |
|
|
Threshold |
|
|
Target |
|
|
Maximum |
|
|
(2) |
|
|
Options |
|
|
Awards (3) |
|
|
(4) |
|
Name |
|
Grant Date |
|
|
($) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
(#) |
|
|
($/Sh) |
|
|
($) |
|
Kenneth W. Stecher |
|
|
2/18/2008 |
* |
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
$ |
37.59 |
|
|
$ |
63,966 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,216 |
|
|
|
|
3/25/2008 |
*** |
|
|
150,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
168,936 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
5,925 |
|
|
|
7,900 |
|
|
|
9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,061 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
John J. Schiff, Jr. |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
37.59 |
|
|
|
239,871 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
6,320 |
|
|
|
7,900 |
|
|
|
9,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296,961 |
|
|
|
|
3/25/2008 |
*** |
|
|
400,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
168,936 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
5,925 |
|
|
|
7,900 |
|
|
|
9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,061 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Johnston |
|
|
7/1/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
25.08 |
|
|
|
34,401 |
|
|
|
|
7/1/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60,192 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
45,050 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
1,800 |
|
|
|
2,400 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,816 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Benoski |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
37.59 |
|
|
|
239,871 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
6,320 |
|
|
|
7,900 |
|
|
|
9,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
296,961 |
|
|
|
|
3/25/2008 |
*** |
|
|
300,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
168,936 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
5,925 |
|
|
|
7,900 |
|
|
|
9,875 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
210,061 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
63,966 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,216 |
|
|
|
|
3/25/2008 |
*** |
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
45,050 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
1,800 |
|
|
|
2,400 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,816 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Joseph |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
63,966 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,216 |
|
|
|
|
3/25/2008 |
*** |
|
|
100,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
45,050 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
1,800 |
|
|
|
2,400 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,816 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Timothy L. Timmel |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
63,966 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,216 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
45,050 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
1,800 |
|
|
|
2,400 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,816 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Popplewell |
|
|
2/18/2008 |
* |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
63,966 |
|
|
|
|
2/18/2008 |
** |
|
|
|
|
|
|
1,920 |
|
|
|
2,400 |
|
|
|
2,880 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
90,216 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
45,050 |
|
|
|
|
11/14/2008 |
** |
|
|
|
|
|
|
1,800 |
|
|
|
2,400 |
|
|
|
3,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,816 |
|
|
|
|
11/26/2008 |
**** |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10 |
|
|
|
|
|
|
|
|
|
|
|
272 |
|
|
|
|
* |
|
Cincinnati Financial Corporation Stock Option Plan No. VII
|
|
** |
|
Cincinnati Financial Corporation 2006 Stock Compensation Plan.
|
|
*** |
|
Cincinnati Financial Corporation 2006 Incentive Compensation Plan. |
|
**** |
|
Holiday Stock Bonus Plan. See Long-Term Stock-Based Compensation, Page 23,
for information about awards of shares under the Holiday Stock Bonus Plan. |
|
(1) |
|
No material modifications or repricing occurred with respect to any
outstanding option or other stock-based award in 2008. |
Page 31
|
|
|
(2) |
|
The grant date fair value of shares awarded under the Holiday Stock Bonus
Plan is 100 percent of the average of the high and low sales price on NASDAQ on the
date of grant, which was $27.18 on November 26, 2008. |
|
(3) |
|
The option exercise price is 100 percent of the average of the high and low
sales price on NASDAQ on the date of grant, which was $37.59, $25.08 and $26.59 for
the grant dates of February 18, 2008, July 1, 2008 and November 14, 2008
respectively. |
|
(4) |
|
The grant date fair value of a performance-based restricted stock unit is
100 percent of the average of the high and low as reported on NASDAQ on the date of
grant, which was $37.59, $25.08 and $26.59 for the grant dates of February 18,
2008, July 1, 2008 and November 14, 2008 respectively, unadjusted for the present
value of future dividends that holders of restricted stock units do not receive
during the vesting period. |
Total 2008 compensation, excluding attributions of compensation related to retirement plans,
declined from 2007 levels for each named executive officer except Mr. Stecher and Mr. Johnston. Mr.
Stechers base salary, variable compensation and stock-based compensation grants were all increased
with his promotion to president and chief executive officer. Mr. Johnstons employment with the
company began June 30, 2008. The year-over-year decline in compensation unrelated to retirement
plans for all of the other named executive officers was due largely to the lower per share grant
date fair value of stock-based compensation compared to 2007 as the number of shares underlying
their awards remained constant. For all of the named executive officers, reported values of stock
awards in 2008 declined as compensation expense for most awards of performance-based restricted
stock units granted in previous periods was reversed in the fourth quarter 2008 when management
determined that achievement of the performance-based targets was no longer probable. Expensing of
2007 grants of performance-based restricted stock units granted to Messrs. Stecher, Schiff,
Benoski, Timmel and Popplewell were not reversed as awards to these retirement-eligible named
executive officers could vest and be paid out if they retire before the end of the performance
period. Because Messrs. Scherer and Joseph are not retirement eligible, amounts reported for stock
awards is a negative number as the reversal of compensation expense related to all grants of
performance-based restricted stock unit awards prior to November 2008 more than offset the value of
the November 2008 performance-based restricted stock units and 10 holiday shares awarded. Total
2007 compensation for each named executive officer was lower compared to 2006 because of the
difference in the expense and composition of stock-based awards made in those years. In addition,
total compensation in 2006 included attributions of compensation from expensing of all outstanding
stock options for Messrs. Benoski and Stecher and attributions of compensation for all accrued
benefits under the SERP for Messrs. Stecher, Joseph and Scherer.
Total compensation disclosed in the Summary Compensation Table does not reflect compensation
actually received by the named executive officer or decisions made by the compensation committee
for any individual named executive officer for any given year. For example, amounts shown for stock
awards and option awards reflect the amount expensed by the company in that year, not an amount
received or realized by the named executive officer. Similarly, amounts shown for changes in
pension value generally reflect changes in the actuarial present value of benefits under retirement
to be distributed in the future. Amounts shown in the Summary Compensation Table for salary, bonus
and total compensation include amounts the named executive officer chose not to receive currently,
but to save for retirement under the Top Hat Savings Plan. See 2008 Nonqualified Deferred
Compensation Plan, Page 37.
Because annual adjustments to base salary are effective the first pay period in December, amounts
reflected in the Salary column do not exactly match the base annual salaries set by the committee
for the following year.
|
|
In November 2008, the committee set 2009 base annual salaries at $780,000 for Mr. Stecher,
$250,000 for Mr. Schiff, $710,460 for Mr. Benoski, $416,000 for Mr. Johnston, $474,472 for Mr.
Scherer, $445,000 for Mr. Joseph, $393,158 for Mr. Timmel, and $362,795 for Mr. Popplewell.
Mr. Benoski retired from executive management of the company effective January 19, 2009 and no
longer receives a salary. |
|
|
|
In July 2008, in connection with management changes made mid-year, the committee set 2008
base annual salary at $400,000 for Mr. Johnston; and adjusted 2008 base annual salaries to
$750,000 for Mr. Stecher; $456,222 for Mr. Scherer; and $427,875 for Mr. Joseph. |
|
|
|
In November 2007, the committee set 2008 base annual salaries at $574,355 for Mr. Stecher;
$805,000 for Mr. Schiff; $683,135 for Mr. Benoski; $426,222 for Mr. Scherer; $377,875 for Mr.
Joseph; $378,033 for Mr. Timmel and $348,841 for Mr. Popplewell. |
Page 32
|
|
In November 2006, the committee set 2007 base annual salaries of $552,264 for Mr. Stecher;
$775,000 for Mr. Schiff; $656,681 for Mr. Benoski; $409,829 for Mr. Scherer and $363,341 for
Mr. Joseph. Mr. Schiff declined increases in his salary or variable compensation award in
November 2006. |
|
|
In May 2006, in connection with changes in executive responsibilities, the committee
adjusted base annual salaries to $529,363 for Mr. Benoski and $457,805 for Mr. Stecher. |
|
|
In November of 2005, the committee set 2006 base annual salaries of $407,807 for Mr.
Stecher; $775,000 for Mr. Schiff; $429,363 for Mr. Benoski; $364,344 for Mr. Scherer and
$319,752 for Mr. Joseph. |
See Base Salary and Variable Compensation, Page 21.
The terms of all of the stock option awards granted in 2008 and prior years and performance-based
restricted stock units granted in January 2007 provide for immediate vesting upon retirement at
normal retirement age or retirement with 35 years of service. Because Messrs. Stecher, Schiff,
Benoski, and Timmel satisfy one or both of these age and service conditions, Statement of Financial
Accounting Standards (SFAS) No. 123(R) requires us to expense the full amount of these awards in
the year of grant or any unvested portion of such awards the year in which the named executive
officer becomes retirement eligible. Accordingly, amounts shown in the Option Awards column of the
Summary Compensation Table for 2008 for Messrs. Stecher, Schiff, Benoski, and Timmel reflect the
full SFAS 123(R) value of stock options granted in 2008 as well as attribution of SFAS 123(R)
compensation from unvested portions of stock options awarded in prior years. Amounts shown in the
Stock Awards and Option Awards columns of the Summary Compensation Table for 2007 for Messrs.
Benoski and Stecher reflect the full SFAS 123(R) value of awards granted in 2007. Amounts shown in
those columns for 2006 for Messrs. Benoski and Stecher reflect attribution of SFAS 123(R)
compensation from unvested portions of stock-based awards granted in years prior to 2006 as well as
the full SFAS 123(R) value of awards granted in that year. For all other named executive officers,
amounts shown in these columns reflect the ratable portion of current and past grants of
stock-based compensation award expensed during the year.
Amounts shown in the Change in Pension Value and Nonqualified Deferred Compensation Earnings
column of the Summary Compensation Table represent the annual incremental changes in the present
values of benefits under the companys defined benefit and SERP plans and changes in the balances
of the Top Hat accounts of named executive officers due to their contributions and investment
performance during the year. For Messrs. Timmel and Popplewell change in pension value includes a
negative amount attributable to the distribution of an amount equal to the actuarial present value
of their accumulated benefit that they rolled over into an Individual Retirement Account in
connection with their move out of the defined benefit pension plan. See Retirement Benefits, Page
26. Amounts shown in 2006 for Messrs. Stecher, Joseph and Scherer include the total present value
of benefits then payable under the SERP because they were first added to the plan effective January
1, 2006.
Page 33
Outstanding Equity Awards at 2008 Year-End
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
|
|
Stock Awards (3) |
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Equity Incentive |
|
|
|
|
Number of |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Plan Awards: |
|
|
|
|
Securities |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market or Payout |
|
|
|
|
Underlying |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
|
Unearned Shares, |
|
|
Value of Unearned |
|
|
|
|
Unexercised |
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
Units or Other |
|
|
Shares, Units or |
|
|
|
|
Options |
|
|
Unexercisable |
|
|
Option Exercise |
|
|
|
|
|
|
|
Rights That Have |
|
|
Other Rights That |
|
|
|
|
Exercisable (2) |
|
|
(2) |
|
|
Price |
|
|
Option |
|
|
|
Not Vested |
|
|
Have Not Vested |
|
Name |
|
|
(#) |
|
|
(#) |
|
|
($) |
|
|
Expiration Date |
|
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
Kenneth W. Stecher |
|
|
|
5,513 |
|
|
|
|
|
|
$ |
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
5,000 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
5,000 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
53,003 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
|
|
226,335 |
|
|
|
|
|
|
|
|
John J. Schiff, Jr. |
|
|
|
115,763 |
|
|
|
|
|
|
|
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
25,125 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333 |
|
|
|
16,667 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,334 |
|
|
|
16,666 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,100 |
|
|
|
174,765 |
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
|
|
226,335 |
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
|
|
226,335 |
|
|
|
|
|
|
|
|
Steven J. Johnston |
|
|
|
|
|
|
|
8,000 |
|
|
|
25.08 |
|
|
|
7/1/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
James E. Benoski |
|
|
|
46,670 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
55,125 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
63,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
33,333 |
|
|
|
16,667 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
8,334 |
|
|
|
16,666 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
6,100 |
|
|
|
174,765 |
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
|
|
226,335 |
|
|
|
|
|
|
|
|
|
30,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,900 |
|
|
|
226,335 |
|
Page 34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards (1) |
|
|
|
Stock Awards (3) |
|
|
|
|
|
|
|
|
Number of |
|
|
|
|
|
|
|
|
|
|
|
Equity Incentive |
|
|
Equity Incentive |
|
|
|
|
Number of |
|
|
Securities |
|
|
|
|
|
|
|
|
|
|
|
Plan Awards: |
|
|
Plan Awards: |
|
|
|
|
Securities |
|
|
Underlying |
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Market or Payout |
|
|
|
|
Underlying |
|
|
Unexercised |
|
|
|
|
|
|
|
|
|
|
|
Unearned Shares, |
|
|
Value of Unearned |
|
|
|
|
Unexercised |
|
|
Options |
|
|
|
|
|
|
|
|
|
|
|
Units or Other |
|
|
Shares, Units or |
|
|
|
|
Options |
|
|
Unexercisable |
|
|
Option Exercise |
|
|
|
|
|
|
|
Rights That Have |
|
|
Other Rights That |
|
|
|
|
Exercisable (2) |
|
|
(2) |
|
|
Price |
|
|
Option |
|
|
|
Not Vested |
|
|
Have Not Vested |
|
Name |
|
|
(#) |
|
|
(#) |
|
|
($) |
|
|
Expiration Date |
|
|
|
(#) |
|
|
($) |
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. |
|
|
|
16,538 |
|
|
|
|
|
|
$ |
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
$ |
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
5,000 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
5,000 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
53,003 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
Thomas A. Joseph |
|
|
|
5,513 |
|
|
|
|
|
|
|
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
5,000 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
5,000 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
53,003 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
Timothy L. Timmel |
|
|
|
16,538 |
|
|
|
|
|
|
|
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
26.95 |
|
|
|
1/25/2010 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,000 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
5,000 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
5,000 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
53,003 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
David H. Popplewell |
|
|
|
16,538 |
|
|
|
|
|
|
|
30.60 |
|
|
|
1/27/2009 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.81 |
|
|
|
1/31/2011 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
34.96 |
|
|
|
1/28/2012 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
32.45 |
|
|
|
2/1/2013 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,538 |
|
|
|
|
|
|
|
38.80 |
|
|
|
1/19/2014 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
15,750 |
|
|
|
|
|
|
|
41.62 |
|
|
|
1/25/2015 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,000 |
|
|
|
5,000 |
|
|
|
45.26 |
|
|
|
2/2/2016 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,500 |
|
|
|
5,000 |
|
|
|
44.79 |
|
|
|
1/31/2017 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,850 |
|
|
|
53,003 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
37.59 |
|
|
|
2/18/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
|
|
|
|
|
|
|
|
8,000 |
|
|
|
26.59 |
|
|
|
11/14/2018 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,400 |
|
|
|
68,760 |
|
Page 35
|
|
|
(1) |
|
Option shares awarded and exercise price have been adjusted to reflect
stock splits and stock dividends where applicable. |
|
(2) |
|
One-third of each option award vests and becomes exercisable on the first,
second, and third anniversaries of the grant provided the associate remains
continuously employed with the company or its subsidiaries. The vesting date of
each option is listed in the table below by expiration date: |
|
|
|
|
|
|
|
|
|
Grant Date |
|
Vesting Dates |
|
Expiration Date |
1/5/1998
|
|
1/5/1999
|
|
1/5/2000
|
|
1/5/2001
|
|
1/5/2008 |
2/7/1998
|
|
2/7/1999
|
|
2/7/2000
|
|
2/7/2001
|
|
2/7/2008 |
8/24/1998
|
|
8/24/1999
|
|
8/24/2000
|
|
8/24/2001
|
|
8/24/2008 |
1/27/1999
|
|
1/27/2000
|
|
1/27/2001
|
|
1/27/2002
|
|
1/27/2009 |
1/25/2000
|
|
1/25/2001
|
|
1/25/2002
|
|
1/25/2003
|
|
1/25/2010 |
1/31/2001
|
|
1/31/2002
|
|
1/31/2003
|
|
1/31/2004
|
|
1/31/2011 |
1/28/2002
|
|
1/28/2003
|
|
1/28/2004
|
|
1/28/2005
|
|
1/28/2012 |
2/1/2003
|
|
2/1/2004
|
|
2/1/2005
|
|
2/1/2006
|
|
2/1/2013 |
1/19/2004
|
|
1/19/2005
|
|
1/19/2006
|
|
1/19/2007
|
|
1/19/2014 |
1/25/2005
|
|
1/25/2006
|
|
1/25/2007
|
|
1/25/2008
|
|
1/25/2015 |
2/2/2006
|
|
2/2/2007
|
|
2/2/2008
|
|
2/2/2009
|
|
2/2/2016 |
1/31/2007
|
|
1/31/2008
|
|
1/31/2009
|
|
1/31/2010
|
|
1/31/2017 |
2/18/2008
|
|
2/18/2009
|
|
2/18/2010
|
|
2/18/2011
|
|
2/18/2018 |
7/1/2008
|
|
7/1/2009
|
|
7/1/2010
|
|
7/1/2011
|
|
7/1/2018 |
11/14/2008
|
|
11/14/2009
|
|
11/14/2010
|
|
11/14/2011
|
|
11/14/2018 |
|
|
|
|
|
Vesting is accelerated and stock options are exercisable immediately upon retirement
for Messrs. Stecher, Schiff, Benoski and Timmel due to attainment of normal
retirement age or 35 years of continuous service. |
|
(3) |
|
The restricted stock units awards granted on February 18, 2008, and July 1,
2008 will vest on March 1, 2011, if performance targets are achieved. The
restricted stock units awards granted on November 14, 2008, will vest on March 1,
2012, if performance targets are achieved. The restricted stock unit awards granted
in 2007 will vest on March 1, 2010, if performance targets are achieved, or upon
retirement during the performance period at age 65 or with 35 years of continuous
service. |
2008 Option Exercises and Stock Vested
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards |
|
Stock Awards (1) |
|
|
Number of Shares |
|
Value Realized on |
|
Number of Shares |
|
Value Realized on |
Name |
|
Acquired on Exercise (#) |
|
Exercise ($) |
|
Acquired on Vesting (#) |
|
Vesting ($) |
Kenneth W. Stecher |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
$ |
|
|
John J. Schiff, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Steven J. Johnston |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Benoski |
|
|
1,290 |
|
|
|
11,494 |
|
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Thomas A. Joseph |
|
|
3,308 |
|
|
|
24,909 |
|
|
|
|
|
|
|
|
|
Timothy L. Timmel |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
David H. Popplewell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Prior to 2007 the company made no stock-based awards to associates other
than stock options and the Holiday Stock Bonus Plan. |
Page 36
2008 Pension Benefits
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Years Credited |
|
Present Value of Accumulated |
Name |
|
Plan Name |
|
Service (#) |
|
Benefit ($) (1) (2) |
Kenneth W. Stecher |
|
Qualified Pension Plan |
|
|
40 |
|
|
$ |
1,201,008 |
|
|
|
|
|
Supplemental Retirement Plan |
|
|
41 |
|
|
|
1,401,097 |
|
John J. Schiff, Jr. |
|
Qualified Pension Plan |
|
|
23 |
|
|
|
1,356,536 |
|
|
|
|
|
Supplemental Retirement Plan |
|
|
23 |
|
|
|
1,371,172 |
|
Steven J. Johnston (3) |
|
Qualified Pension Plan |
|
|
0 |
|
|
|
|
|
|
|
|
|
Supplemental Retirement Plan |
|
|
0 |
|
|
|
|
|
James E. Benoski |
|
Qualified Pension Plan |
|
|
37 |
|
|
|
1,153,394 |
|
|
|
|
|
Supplemental Retirement Plan |
|
|
37 |
|
|
|
1,247,943 |
|
Jacob F. Scherer, Jr. |
|
Qualified Pension Plan |
|
|
25 |
|
|
|
704,039 |
|
|
|
|
|
Supplemental Retirement Plan |
|
|
25 |
|
|
|
511,622 |
|
Thomas A. Joseph |
|
Qualified Pension Plan |
|
|
32 |
|
|
|
935,958 |
|
|
|
|
|
Supplemental Retirement Plan |
|
|
32 |
|
|
|
523,549 |
|
Timothy L. Timmel |
|
Qualified Pension Plan |
|
|
38 |
|
|
|
|
|
|
|
|
|
Supplemental Retirement Plan |
|
|
38 |
|
|
|
722,744 |
|
David H. Popplewell |
|
Qualified Pension Plan |
|
|
12 |
|
|
|
|
|
|
|
|
|
Supplemental Retirement Plan |
|
|
12 |
|
|
|
146,357 |
|
|
|
|
(1) |
|
Amounts listed in the Present Value of Accumulated Benefit column were
calculated as of December 31, 2008, using the Pension Benefit Guaranty Corporation
Immediate Interest Rate published on December 15, 2007, which was 3.0 percent, and
the 1983 Group Annuity Mortality Table for males, set back one year. |
|
(2) |
|
The amounts shown in the Present Value of Accumulated Benefit column for
Messrs. Schiff and Benoski reflect action by the Retirement Committee effective
January 1, 2000, to transfer the accrued benefit amount of each SERP member to the
Retirement Plan as an additional special benefit that will be paid from the
tax-qualified Retirement Plan. Any additional benefit amounts accrued from the SERP
after January 1, 2000, will be paid from the SERP. |
|
(3) |
|
Mr. Johnston joined the company after entry into the defined benefit
pension plan was closed. |
See Retirement Benefits, Page 26, for details about plans providing retirement benefits to the
named executive officers.
At December 31, 2008, Mr. Stecher was eligible to elect early retirement under the Retirement Plan
and the SERP, and Messrs. Schiff and Benoski were eligible for normal retirement under these plans.
2008 Nonqualified Deferred Compensation Plan (1) (2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Executive |
|
Registrant |
|
|
|
|
|
|
Aggregate balance at |
|
contributions in |
|
contributions in last |
|
Aggregate earnings |
|
Aggregate balance at |
|
|
2007 Year End |
|
2008 |
|
FY |
|
in 2008 |
|
2008 Year End |
Name |
|
($) |
|
($)(3) |
|
($) |
|
($) |
|
($)(4) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kenneth W. Stecher |
|
$ |
29,718 |
|
|
|
|
|
|
|
|
|
|
$ |
(12,710 |
) |
|
$ |
17,008 |
|
John J. Schiff, Jr. |
|
|
476,107 |
|
|
|
|
|
|
|
|
|
|
|
(108,060 |
) |
|
|
368,047 |
|
Steven J. Johnston |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
James E. Benoski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jacob F. Scherer, Jr. |
|
|
494,922 |
|
|
|
41,600 |
|
|
|
|
|
|
|
(192,275 |
) |
|
|
344,247 |
|
Thomas A. Joseph |
|
|
67,556 |
|
|
|
11,895 |
|
|
|
|
|
|
|
(31,918 |
) |
|
|
47,533 |
|
Timothy L. Timmel |
|
|
272,669 |
|
|
|
|
|
|
|
|
|
|
|
(61,887 |
) |
|
|
210,782 |
|
David H. Popplewell |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Prior to 2009 the company did not contribute to the Top Hat Savings Plan.
|
|
(2) |
|
No withdrawals or distributions occurred in 2008. |
|
(3) |
|
The named executive officers contributions shown in this column are also
reported in the Summary Compensation Table in the salary or bonus columns, and
included in the amounts shown for total compensation. |
|
(4) |
|
Of the amounts shown in this column, $4,458, $20,880, $84,000 for Messrs.
Stecher, Joseph and Scherer, respectively, were reported in the Summary
Compensation Table in prior years. |
Compensation payable to the named executive officers may be deferred pursuant to the Top Hat
Savings Plan. Under the Top Hat Savings Plan, highly compensated individuals as defined by the
plan, including the named executive officers, may elect to defer up to 25 percent of salary and up
to 100 percent of variable compensation, less the required withholdings, provided that the total
amount of salary and variable compensation deferred does not exceed the maximum amount permitted by
the Internal Revenue Code, which was $46,000 in 2008. Deferral elections are made before the plan
year for which
Page 37
compensation is to be deferred and are effective for the entire year and generally
may not be modified or terminated for that year. Compensation deferred by the named executive
officer is credited to the individuals deferred compensation account maintained by the company.
Beginning in 2008, in connection with the companys redesign of our retirement benefits plans, we
amended the Top Hat Savings Plan to eliminate the cap on the amount of salary that may be deferred
and to permit company matching contributions for officers who have contributed to and received the
maximum company match allowable in their 401(k) accounts, yet due to tax law limitations, are
unable to contribute and receive a matching contribution for the compensation that exceeds the
limit imposed on tax qualified 401(k) plans. We do not otherwise contribute to or match
contributions to this plan. Participants are prohibited from borrowing or pledging amounts credited
to their accounts. Fifth Third Bank, a subsidiary of Fifth Third Bancorp, is the third-party
administrator of the Top Hat Savings Plan. Under the plan, individuals choose one or more of
several specified investment alternatives, including an alternative for Cincinnati Financial
Corporation common stock. Earnings credited to the named executive officers account are calculated
based on the performance of the applicable investment choice(s) selected by the named executive
officer. We do not guarantee any level of return on contributions to the Top Hat Savings Plan.
Distributions from the Top Hat Savings Plan are made as soon as legally and administratively
feasible after retirement, other termination of employment or death, or pursuant to a qualified
domestic relations order. Distributions to the named executive officers due to retirement or other
termination of employment are not permitted until 180 days after employment terminates. Other than
distributions pursuant to qualified domestic relations orders, distributions are made in the form
of either a single lump sum payment or monthly installments of not less than 12 months or more than
120 months, depending upon the participants prior election. To the extent that a participant
chooses to have earnings credited based on the Cincinnati Financial Corporation common stock
election, the participant may choose to receive any benefit payments in the form of stock. All
other distributions are made in cash.
Potential Payments upon Termination or Change of Control
As of December 31, 2008, the only benefit a named executive officer could receive upon any
termination of employment, except for retirement or termination due to a change in control is the
balance of a Top Hat Savings Plan account disclosed in the Aggregated Balance at 2008 Year End
column of the 2008 Nonqualified Deferred Compensation Plan table above. In the case of retirement,
named executive officers who are at least 65 years of age additionally could receive vested
retirement benefits and accelerated vesting of certain outstanding stock-based awards, while for
retirement at age 60 without 35 years of service a named executive officer could receive a vested
early retirement b(enefit, but no acceleration of outstanding stock-based awards. Named executive
officers who retire before reaching 60 years of age but who have achieved 35 years of continuous
service or who retire due to total and permanent disability could receive accelerated vesting of
certain outstanding stock-based awards. Named executive officers who are terminated due to a change
in the control of the company could receive accelerated vesting of all stock-based awards made
under the 2006 Stock Compensation Plan,
but not under earlier plans. The following table reflects the values of retirement benefits and the
acceleration of vesting of the pertinent stock-based awards assuming termination of employment due
to retirement or a change of control on December 31, 2008.
Page 38
Potential Payments upon Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accelerated Vesting of Stock-Based Awards |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Retirement with |
|
Change |
Name |
|
Retirement Plan |
|
SERP |
|
Retirement |
|
disability |
|
in control |
Kenneth W. Stecher |
|
|
|
|
|
$ |
1,093,012 |
(1) |
|
$ |
1,275,109 |
(1) |
|
$ |
128,180 |
|
|
$ |
427,601 |
|
|
$ |
427,601 |
|
John J. Schiff, Jr. |
|
|
|
|
|
|
1,356,536 |
|
|
|
1,371,172 |
|
|
|
251,727 |
|
|
|
711,033 |
|
|
|
711,033 |
|
Steven J. Johnston (2) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
193,777 |
|
|
|
193,777 |
|
James E. Benoski |
|
|
|
|
|
|
1,153,394 |
|
|
|
1,247,943 |
|
|
|
251,727 |
|
|
|
711,033 |
|
|
|
711,033 |
|
Jacob F. Scherer, Jr. |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,156 |
|
|
|
213,156 |
|
Thomas A. Joseph |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
213,156 |
|
|
|
213,156 |
|
Timothy L. Timmel (2) |
|
|
|
|
|
|
|
|
|
|
615,959 |
(1) |
|
|
73,620 |
|
|
|
213,156 |
|
|
|
213,156 |
|
David H. Popplewell |
|
|
|
|
|
|
|
|
|
|
145,720 |
(1) |
|
|
73,620 |
|
|
|
213,156 |
|
|
|
213,156 |
|
|
|
|
(1) |
|
Reflects early retirement benefit calculation. |
|
(2) |
|
Mr. Johnston was hired after entry into the defined benefit pension plan
was closed and, therefore, was never a member of the pension plan or the SERP.
Messrs. Timmel and Popplewell were not participants in the defined benefit pension
plan on December 31, 2008. |
2008 Director Compensation (1)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fees Earned or Paid in |
|
Stock Awards |
|
|
|
|
Name |
|
Cash ($) |
|
($)(2) |
|
All Other Compensation ($)(3) |
|
Total ($) |
William F. Bahl |
|
$ |
147,500 |
|
|
$ |
60,019 |
|
|
$ |
7,350 |
|
|
$ |
214,869 |
|
Gregory T. Bier |
|
|
141,500 |
|
|
|
60,019 |
|
|
|
5,584 |
|
|
|
207,103 |
|
Dirk J. Debbink |
|
|
43,000 |
|
|
|
18,001 |
|
|
|
2,472 |
|
|
|
63,473 |
|
Kenneth C. Lichtendahl |
|
|
102,500 |
|
|
|
52,523 |
|
|
|
5,374 |
|
|
|
160,397 |
|
W. Rodney McMullen |
|
|
144,500 |
|
|
|
60,019 |
|
|
|
5,540 |
|
|
|
210,059 |
|
Gretchen W. Price |
|
|
102,500 |
|
|
|
52,523 |
|
|
|
1,330 |
|
|
|
156,353 |
|
Thomas R. Schiff |
|
|
135,500 |
|
|
|
60,019 |
|
|
|
1,584 |
|
|
|
197,103 |
|
Douglas S. Skidmore |
|
|
93,500 |
|
|
|
43,522 |
|
|
|
1,380 |
|
|
|
138,402 |
|
John F. Steele, Jr. |
|
|
87,500 |
|
|
|
37,506 |
|
|
|
1,809 |
|
|
|
126,815 |
|
Larry R. Webb |
|
|
108,500 |
|
|
|
58,515 |
|
|
|
6,400 |
|
|
|
173,415 |
|
E. Anthony Woods |
|
|
143,000 |
|
|
|
60,019 |
|
|
|
6,023 |
|
|
|
209,042 |
|
|
|
|
(1) |
|
Directors listed in this table are outside directors. Messrs. Stecher,
Schiff and Benoski are directors who are also executive officers of the company.
Their compensation as named executive officers is shown in the Summary Compensation
Table and supporting disclosure beginning on Page 29. They receive no additional
compensation for their service as directors. |
|
(2) |
|
Stock awards are valued at full fair market value determined by the average
of the high and low sales price on NASDAQ on January 29, 2009, the date of grant,
times the number of shares awarded. The per share fair market value on January 29,
2009, was $23.50. The number of shares granted to directors for award reported in
this column were: 2,554 shares each to Messrs. Bahl, Bier, McMullen, Schiff and
Woods; 2,490 shares to Mr. Webb; 2,235 shares each to Mr. Lichtendahl and Ms.
Price, 1,852 shares to Mr. Skidmore; 1,596 shares to Mr. Steele, and 766 shares to
Mr. Debbink. There were no forfeitures in this plan in 2008. |
|
(3) |
|
Reflects perquisites in an aggregate amount less than $10,000 of one or
more of the types described in Perquisites and Other Personal Benefits, Page 29. |
Outside directors are paid cash fees of:
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$4,500 for attendance at each parent or subsidiary companys board meeting and |
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$1,500 for attendance at each meeting of a parent or subsidiary board committee. |
Fees for all meetings in any one day are not to exceed $6,000. In 2008, outside directors were paid
an annual cash retainer of $50,000. Outside directors are reimbursed for travel expenses incurred
in attending meetings. Outside directors also receive compensation in the form of common stock
under the Cincinnati Financial Corporation 2003 Non-Employee Directors Stock Plan (2003 Stock
Plan). The purpose of this shareholder-approved plan is to attract and retain the services of
experienced and knowledgeable non-employee directors and to strengthen the alignment of interests
between the non-employee directors and shareholders. Shares received under the plan assist
directors in achieving ownership levels consistent with the companys Director and Officer Stock
Ownership Guidelines. Under the 2003 Stock Plan, directors receive unrestricted shares of the
companys common stock with a fair market value on the date of grant equal to the cash directors
fees received by such directors during
Page 39
the last calendar year, up to a maximum of $60,000 of cash fees. Awards to individual directors may slightly exceed $60,000 in value as the plan provides for rounding up to whole shares.
The committee grants awards for each directors prior years board service under the 2003 Stock Plan at its first scheduled meeting each calendar year. See Stock-Based Award Grant Practices, Page 26. Amounts shown in the Stock Awards column reflect grants awarded under the 2003 Stock Plan at the committees meeting on January 29, 2009, based on cash fees earned for board service in 2008.
At its January 30, 2009, meeting, the board of directors, acting upon recommendations from the compensation committee, approved two changes to the structure of director compensation for outside directors beginning in 2009, provided shareholders approve the Directors Stock Plan of 2009 (2009 Stock Plan) at the Annual Meeting of Shareholders. Subject to shareholder approval of the plan, the board reduced the level of annual cash retainer to
$25,000 and adopted the 2009 Stock Plan, which grants shares of the companys common stock equal to meeting fees as under the 2003 Stock Plan, plus shares equal to the reduced cash retainer. Shares granted under the 2009 Stock Plan would be restricted shares, nontransferable, except upon death, for three years from the grant date. The committee and the board believe that these changes will increase stock ownership by outside directors in furtherance of the ownership guidelines and by restricting trans
ferability of the shares, will further align the outside directors financial interest with the interests of shareholders.
The company also provides outside directors with life insurance, personal umbrella liability insurance and spouse travel and meals to certain business events. See Perquisites and Other Personal Benefits, Page 29, for details about these benefits. Amounts contained in the All Other Compensation column reflect the aggregate cost of these individual benefits.
The company does not provide outside directors with retirement benefits, benefits under health and welfare plans or compensation in any form not described above, nor does it have any agreement with any director to make charitable donations in the directors name.
Page 40
Proposal 3 Managements Proposal to Adopt Cincinnati Financial Corporation
Annual Incentive Compensation Plan of 2009
Purpose
The board of directors of the company has approved and recommends shareholder approval of the
Cincinnati Financial Corporation Annual Incentive Compensation Plan of 2009, (a copy of which is
attached as Appendix A). The 2009 Incentive Plan replaces the shareholder-approved 2006 Annual
Incentive Compensation Plan.
The purposes of the plan are to:
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Link bonus compensation for the executive officers of the company, to the companys
achievement of pre-established performance goals. |
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Maximize the companys federal income tax deduction for the annual cash compensation paid
to those executives pursuant to Section 162(m) of the Internal Revenue Code. |
Under Internal Revenue Code Section 162(m), the compensation of any one of the named executive
officers, to the extent it exceeds $1 million per year, is a deductible expense by the company only
when any amount of compensation exceeding $1 million is based upon the achievement of
pre-established performance goals. Approval of this plan would allow the company to maximize its
income tax deduction if the bonuses paid under the plan cause total compensation for any
participant to exceed $1 million in any calendar year.
Plan Description
The companys executive officers are eligible to participate in the plan. Participants are eligible
to receive awards under the plan upon achievement by the company and its subsidiaries on a
consolidated basis of one or more performance goals specified in the plan. The 2009 Incentive Plan
provides a wider variety of performance objectives from which the compensation committee can select
appropriate short-term performance objectives to support the companys strategic objectives.
Performance goals under the 2009 Incentive Plan include: total shareholder return, return on
equity, return on economic capital, change in operating income, underwriting profitability,
revenue, expenses, earnings per share, operating earnings per share or the companys value creation
ratio defined by the plan. Performance goals may be numeric or a comparison to the peer group.
The compensation committee sets the performance targets within the first 90 days of the calendar
year to which the goals apply. The maximum bonus amount each participant is eligible to receive is
$1 million annually, with the actual amount of any bonus set by the compensation committee pursuant
to the overall compensation policies of the committee. The compensation committee may exercise
negative discretion to reduce or eliminate the amount of any award earned upon achievement of the
specified performance goal for the year. Awards may be forfeited or recouped by the company in
certain cases of misconduct by the officer.
The board of directors may modify or terminate the plan at any time for any legal purpose. However,
shareholder approval of any modifications to material terms of the plan is necessary for the
company to retain its federal income tax deduction for compensation paid under this plan.
There are three substantive differences between the 2009 Incentive Plan and the predecessor plan.
First, the definition of participant is expanded to include all executive officers instead of
only the top five named in the proxy statement. This expansion is intended to support the
committees ability to use this compensation plan for certain executive officers without the
eligibility disruption caused by one-time events that can determine which executive officers are
included in the companys Summary Compensation Table. Next, the 2009 Incentive Plan includes a
variety of performance objectives that can be used by the committee to establish performance
targets for awards while the predecessor plan used a static 3-part performance objective. Last, the
2009 Incentive Plan includes new forfeiture and recoupment provisions that allow the company to
recover awards in certain cases of misconduct by the participant.
Subject to shareholder approval of the plan, in the first 90 days of 2009, the committee intends to
establish performance targets and grant awards under the 2009 Incentive Plan to one or more
executive officers.
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Use of Predecessor Plan
Following shareholder approval in 2006, the compensation committee granted awards under the
predecessor plan in 2007 and 2008. In 2007, grants of awards ranging from $100,000 to $400,000 were
made to four executive officers. The performance targets established for the 2007 awards were
achieved. However, the compensation committee exercised its negative discretion to reduce all award
payouts to zero, finding that compensation otherwise paid to these officers for 2007 was adequate
under all of the facts and circumstances known to the committee. In 2008, grants of awards ranging
from $100,000 to $400,000 were made to five executive officers. Performance targets established for
the 2008 awards were not achieved, and no awards were paid.
To approve the plan, a copy of which is attached as Appendix A, a majority of the shares present or
represented by proxy at the meeting and entitled to vote must be voted FOR the proposal.
The board of directors recommends a vote FOR the proposal to adopt the Cincinnati Financial
Corporation Incentive Compensation Plan of 2009.
Page 42
Proposal 4 Managements Proposal to Adopt Cincinnati Financial Corporation
Directors Stock Plan of 2009
Purpose
The board of directors of the company has approved the proposal to submit the Cincinnati Financial
Corporation Directors Stock Plan of 2009 (a copy of which is attached as Appendix B) to
shareholders for approval. The 2009 Directors Stock Plan replaces the shareholder-approved 2003
Non-Employee Director Stock Plan that expires in January 2010. The purpose of the 2009 Directors
Stock Plan is to enable Cincinnati Financial Corporation to attract and retain the services of
experienced and knowledgeable outside directors and to strengthen the alignment of interests
between outside directors and the shareholders of the company through the increased ownership of
shares of the companys common stock. This will be accomplished by granting directors shares of
common stock as a part of their annual compensation.
Plan Description
Under the 2009 Directors Plan adopted by the board of directors in January 2009, the compensation
committee of the board of directors is authorized to grant outside directors restricted shares of
common stock with a fair market value on the date of grant equal to the sum of i) the annual cash
retainer plus ii) cash directors fees received by such directors for attendance at board and
committee meetings during the prior calendar year, but not to exceed $60,000 of meeting fees in any
calendar year. If the plan is approved by shareholders, the annual cash retainer will be reduced to
$25,000 from $50,000. Because the shares granted under the plan will include shares equal to the
reduced cash retainer, the result is payment of the $50,000 retainer half in cash and half in
stock. The level of shares granted for meeting fees will be unchanged from the predecessor plan.
Such grants are compensation in addition to cash compensation earned for board service. Shares
awarded under the 2009 Directors Plan will be restricted and nontransferable, except upon death,
for three years following the date of grant. The grant of a stock award under the plan will result
in ordinary taxable income to the director in an amount equal to the value of the stock award on
the date of grant, and the company will be entitled to a tax deduction for the same amount.
Share awards are valued at the average of the high and low sales price quotations for common stock
of the company on the NASDAQ National Market on the day of the grant. A total of 300,000 shares are
available under the 2009 Directors Plan. The 2009 Directors Plan permits the number of available
shares to be adjusted for stock dividends and stock splits.
Use of Predecessor Plan
Under the expiring 2003 Non-employee Directors Stock Plan a total of 105,155 shares were granted
between 2003 and 2009. The predecessor plan allowed the number of shares available under the plan
to be adjusted for stock dividends and stock splits. On January 29, 2009, the date of the most
recent grant under the predecessor plan, the average of the high and low of the companys common
stock market price as reported by NASDAQ was $23.50 per share.
The board of directors recommends a vote FOR the proposal to adopt the Cincinnati Financial
Corporation Incentive Compensation Plan.
Page 43
Other Business
Proposal 5 Shareholder Proposal for Declassified Board
The company has been notified that Gerald R. Armstrong, 910 Sixteenth Street, No. 412, Denver,
Colorado 80202-2917, owner of 200 shares of the companys common stock, intends to present the
proposal set forth below for consideration at the Annual Meeting. In accordance with federal
securities regulations, we include the shareholder proposal plus any supporting statement exactly
as submitted by the proponent. Therefore, the company takes no responsibility for the content of
the proposal or supporting statement submitted by the proponent. To help readers easily
distinguish between material provided by the proponent and material provided by the company, we
have boxed the material provided by the proponent.
Resolution
That the shareholders of CINCINNATI FINANCIAL CORPORATION request its Board of Directors to take
the steps necessary to eliminate classification of terms of the Board of Directors to require that
all Directors stand for election annually. The Board declassification shall be completed in
a manner that does not affect the unexpired terms of the previously-elected Directors.
Statement
The proponent believes the election of directors is the strongest way that shareholders influence
the directors of any corporation. Currently, our board of directors is divided into three classes
with each class serving three-year terms. Because of this structure, shareholders may only vote for
one-third of the directors each year. This is not in the best interest of shareholders because it
reduces accountability.
Xcel Energy Inc., Devon Energy Corporation, ConocoPhillips, ONEOK, Inc. CenterPoint Energy, Inc.,
Hess Corporation have adopted this practice and it has been approved by shareholders at C H Energy
Group, Inc., Central Vermont Public Service Corporation, Black Hills Corporation, Spectra Energy
Corp., Chesapeake Utilities Corp. upon presentation of a similar resolution by the proponent during
2008. The proponent is a prefessional investor who has studied this issue carefully.
The performance of our management and our Board of Directors is now being more strongly tested due
to economic conditions and the accountability for performance must be given to shareholders whose
capital has been entrusted in the form of share investments.
A study by researchers at Harvard Business School and the Univerity of Pennsylvanias Wharton
School titled Corporate Governance and Equity Prices (Quarterly Journal of Economics, February,
2003), looked at the relationship between corporate governance practices (including classified
boards) and firm performance. The study found a significant positive link between governance
practices favoring shareholders (such as annual directors election) and firm value.
While management may argue that directors need and deserve continuity, management should become
aware that continuity and tenure may be best assured when their performance as directors is
exemplary and is deemed beneficial to the best interests of the corporation and its shareholders.
The proponent regards as unfounded the concern expressed by some that annual election of all
directors could leave companies without experienced directors in the event that all incumbents are
voted out by shareholders. In the unlikely event that shareholders do vote to replace all
directors, such a decision would express dissatisfaction with the incumbent directors and reflect
the need for change.
If you agree that shareholders may benefit from greater accountability afforded by annual election
of all directors, please vote FOR this proposal.
BOARD OF DIRECTORS OPPOSES PROPOSAL SUGGESTING WE TAKE STEPS
TOWARD DECLASSIFIED BOARD
We believe that taking steps toward declassifying our board and asking our shareholders to annually
elect directors would not serve the best interests of those shareholders or your company. After
careful consideration, we recommend a NO vote on this proposal.
Under your companys Articles of Incorporation, the board currently consists of three classes or
groupings of directors, each serving three-year terms staggered so that approximately one-third of
your directors stand for election each year. This classified structure is a very common structure
for boards of
Page 44
U.S. publicly traded companies. For more than 55 years, shareholders have benefited from its
positive effects, which complement the cyclical nature of our insurance business and support our
long-term strategic focus.
First, we ask shareholders to preserve the classified board structure in view of these many
advantages it offers:
Continuity The three-year staggered term is designed to provide stability and continuity,
assuring that a majority of your directors at any given time has prior experience as directors of
your company. Experienced directors can share accumulated knowledge to increase the full boards
understanding of the companys business and the complex insurance marketplace.
The experience and qualifications of our board as a whole depend upon a balance of contributions
from individuals, each with a specific expertise, that jointly are essential to the boards ability
to make decisions, execute long-term strategic plans and increase our long-term return to
shareholders. A classified board also permits us to attract and retain highly qualified
individuals.
Shareholder Protection A classified board also protects us from hostile and unsolicited takeover
attempts that do not offer the greatest value to our shareholders. If the board were declassified,
a potential acquirer could without paying any premium to our shareholders gain control of your
company by replacing a majority of your board with its own slate of nominees at a single annual
meeting. The existence of a classified board would encourage a potential acquirer to negotiate with
your directors, giving us additional time and bargaining power to negotiate a transaction in the
best interests of our shareholders and other constituencies.1
Alignment with Shareholders Most importantly, your board believes that its interests are
specifically aligned with shareholders interests, through the fiduciary duty owed by directors to
act in shareholders best interests. Your directors intend to discharge that duty to our utmost
ability, using the available defensive tactics to resist any action that the board believes not to
be in the best interests of shareholders. Your board is comprised of a majority of independent,
non-management directors who will always put the interests of our shareholders first.
Second, we ask shareholders to note factual inaccuracies in the proposals argument that could
mislead you about the benefits of approving the proposal.
Inaccurate on Accountability The proposal inaccurately asserts that the classified board
structure diminishes director accountability to shareholders. All directors have fiduciary duties
to act in good faith and in the best interests of the company and shareholders, regardless of how
frequently they stand for election. Your board of directors has remained steadfast in considering
the long-term effects of its decisions on shareholder value and not exclusively focusing on
short-term profits. Contrary to the proponents argument, declassifying the board would not
increase your boards accountability, which arises from this fiduciary relationship, not from a
directors term of service.
Inaccurate on Shareholder Value The proposal also inaccurately refers to a correlation between
annual election of directors and firm value. It selectively cites one of many academic studies on
this topic, each of which has different criteria, weighting and conclusions.2 The
authors of the cited study do not suggest a causal relationship between value and any one of the 24
corporate governance provisions they reviewed, much less a special correlation between annual
election of directors and firm value. In fact, this study states that if the power provided by a
classified board is used judiciously, it could lead to increased shareholder wealth.
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1 |
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Target shareholders of firms with classified boards
receive a larger proportional share of the total value gains from a merger.
Eric S. Robinson, Classified Boards Once Again Prove Their Value to
Shareholders in Recent Takeover Battle, Wachtell, Lipton, Rosen & Katz (2007).
In 2007, Midwest Air obtained 13 percent above the price its shareholders would
have received from a hostile takeover had Midwest Air not had a classified
board and shareholder rights plan. |
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Paul A. Gompers, Joy L. Ishii, Andrew Metrick,
Corporate Governance and Equity Prices, Quarterly Journal of Economics (2003). |
Page 45
Moreover, a different study was conducted the same year reviewing a broader index of 51 corporate
governance provisions. This study suggests that companies with classified boards have higher profit
margins and higher dividend yields. Furthermore, the study indicated that annual election of
directors is one of the seven governance factors, among the 51 reviewed, that most are often
associated with bad performance.3
Inaccurate on Adoption Facts Your companys current election of directors by classes is a common
practice adopted by many companies. Half of the companies in the Standard & Poors 1500 Index
currently have boards with classified terms. The proposal selectively listed several companies that
have taken steps to implement annual director terms, ignoring the particular financial and market
circumstances underlying each companys decision. In addition, the proponent erroneously cites
Spectra Energy Corp. and Chesapeake Utilities Corp. as having declassified their board. In fact,
both companies continue to maintain classified boards.
Third, we ask shareholders to cautiously and prudently consider any such proposal that calls for an
extended process and introduces changes into our fundamental corporate documents.
Approval of this shareholder proposal would not accomplish the declassification of our board. The
proposal requests only that our board take the necessary steps to declassify.
To actually change its structure, your board would have to initiate a process that could extend
over multiple years, using time and resources better focused on conducting business in these
challenging times. Proceeding toward declassification would require that the board ultimately
decide to change the classified board, and then present to you, our shareholders, a proposal to
amend your companys Amended and Restated Certificate of Incorporation. The affirmative vote of at
least 75 percent of the voting power of all outstanding shares of your companys stock would be
required for an amendment to become effective.
Summary In short, directors who have experience with us and are familiar with our policies,
strategies, and businesses are a valuable resource and well positioned to make decisions aligned
with your shareholder interests and with company interests. The current classified board structure
helps assure this experience, supporting the continuity and stability of the companys management
and policies. It ensures that a majority of directors at any given time has prior experience with
and in-depth knowledge of our company. Further, it would protect shareholders in the event of a
takeover attempt by allowing time for negotiation of a premium payable to you, the shareholders.
Continuing with a classified board would position your company alongside many other companies that
seek these same benefits and would avoid a lengthy, resource-consuming process.
The board of directors recommends a vote AGAINST this proposal to move toward a declassified board.
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3 |
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Lawrence D. Brown and Marcus L. Caylor, Corporate
Governance and Firm Performance, Institutional Shareholder Services (2004) at
p. 30. |
Page 46
Conclusion
Shareholder Proposals for Next Year
Any qualified shareholder who wishes to present a proposal for action at the 2010 Annual Meeting of
Shareholders must submit the proposal to Cincinnati Financial Corporation, P.O. Box 145496,
Cincinnati, Ohio 45250-5496, on or before November 23, 2009, to be included in our proxy statement
and proxy for the 2010 annual meeting. Any such proposal must conform to the rules and regulations
of the SEC and otherwise be in accordance with other federal laws as well as the laws of the State
of Ohio. If the date of the 2010 annual meeting is not within 30 days of May 2, 2010, the deadline
will be a reasonable time before we begin to print and mail the proxy material for the 2010 Annual
Meeting of Shareholders. In addition, the proxy solicited by the board for the 2010 annual meeting
will confer discretionary authority on the persons named in such proxy to vote on any shareholder
proposal presented at that meeting if we receive notice of such proposal later than February 8,
2010, without the matter having been discussed in such proxy.
Cost of Solicitation
Proxies may be solicited by our directors, officers or other employees, either in person or by
mail, telephone or e-mail. The cost of soliciting proxies will be borne by the company. We have
contracted with Broadridge Financial Solutions Inc. to provide Internet and telephone voting
service for our direct shareholders of record. We ask banks, brokerage houses, other custodians,
nominees and fiduciaries to forward copies of the proxy material to beneficial owners of shares or
to request authority for the execution of proxies; and we have agreed to reimburse reasonable
out-of-pocket expenses incurred. The company has retained Georgeson Shareholder Communications Inc.
to be available to assist in soliciting proxies for the annual meeting should a need for their
services be determined. The cost of those services, if used, would be approximately $12,500 plus
out of pocket expenses.
Other Business
Management does not know of any other matter or business that may be brought before the meeting;
but if any other matter or business properly comes before the meeting, it is intended that a vote
will be cast pursuant to the accompanying proxy in accordance with the judgment of the person or
persons voting the same.
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/S/ Steven J. Johnston
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Steven J. Johnston, FCAS, MAAA, CFA |
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Secretary March 20, 2009
Cincinnati Financial Corporation |
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[Page Intentionally Blank]
Page 48
Appendix A
Cincinnati Financial Corporation
Annual Incentive Compensation Plan of 2009
1. |
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Purpose. The purpose of the Cincinnati Financial Corporation Annual Incentive Compensation
Plan of 2009 is to provide the executive officers of Cincinnati Financial Corporation and its
subsidiaries on a consolidated basis with bonus compensation based upon the achievement of
pre-established Performance Goals, as well as to maximize the Companys income tax deduction
for the amount of the annual compensation paid to the president and chief executive officer
and the four most highly compensated executive officers other than the president and chief
executive officer, pursuant to Section 162(m) of the Internal Revenue Code. |
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2. |
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Definitions. For purposes of the Plan, the following terms are defined as set forth below: |
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a. |
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Award means the Incentive Compensation to which a Participant may become entitled
upon the achievement of the Performance Goals. |
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b. |
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Board means the board of directors of the Company. |
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c. |
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Code means the Internal Revenue Code of 1986, as amended from time to time, and any
successor thereto. |
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d. |
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Commission means the Securities and Exchange Commission or any successor agency. |
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e. |
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Committee means the compensation committee of the Board or a subcommittee thereof,
any successor thereto or such other committee or subcommittee as may be designated by the
Board to administer the Plan, which shall at all times consist of two or more outside
directors, as defined under Section 162(m) of the Internal Revenue Code and the treasury
regulations issued thereunder. |
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f. |
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Company means Cincinnati Financial Corporation, a corporation organized under the
laws of the State of Ohio, or any successor thereto and its subsidiaries on a consolidated
basis. |
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g. |
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Participant means the executive officers of the Company, including the president and
chief executive officer and the four most highly compensated officers of the Company (other
than the president and chief executive officer), as more fully described by the regulations
adopted by the Commission under the Securities Exchange Act of 1934. |
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h. |
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Peer Group means The Chubb Corporation, The Hanover Insurance Group, Inc.,
Harleysville Group, Inc., The Hartford Financial Services Group, Inc., Markel Corporation,
Selective Insurance Group, Inc., State Auto Financial Corporation, and The Travelers
Companies, Inc. |
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i. |
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Performance Goals means the objectives for the Company as established by the
Committee within the first 90 days of each calendar year. The Performance Goals are
intended to constitute performance-based compensation with the meaning of Section 162(m)
of the Code, or any amended or successor provision. |
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j. |
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Performance Year means the calendar year ending December 31 in which the performance
goal shall be measured. |
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k. |
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Plan means the Cincinnati Financial Corporation Annual Incentive Compensation Plan of
2009, which is the amended and restated Cincinnati Financial Corporation 2006 Incentive
Compensation Plan. |
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l. |
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Value Creation Ratio equals the total of 1) the rate of growth in book value per
share plus 2) the ratio of dividends declared per share to beginning book value per share. |
3. |
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Administration of Plan. The Plan is administered by the Companys Compensation Committee. The
Committee has full power, authority and discretion to administer and interpret the Plan and to
establish rules for its administration. The Committee, in making any determination under or
referred to in the Plan, is entitled to rely on opinions, reports or statements of officers,
employees, legal counsel and the public accountants of the Company, and upon the published
financial reports of the Companys Peer Group. |
4. |
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Effective Date of Plan. The Plan is effective on the date of approval by the Companys Board
of Directors, conditioned upon shareholder approval at the next Annual Meeting of
Shareholders. |
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5. |
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Awards. Each Award under the Plan is evidenced by a written agreement in a form prescribed by
the Committee that sets for the terms, conditions and limitations for the Award (Award
Agreement). Each Participant is eligible to receive an Award of up to $1,000,000 annually
pursuant to the satisfaction of the Performance-Based Goal from in Section No. 6 that is set
forth in the Award Agreement. |
6. |
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Performance-Based Goals. |
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a. |
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Awards under the Plan are earned upon the achievement by the Company of the Performance
Goal set forth in the Award Agreement. The Committee may establish the Performance Goal for
the Performance Year based on one or more of the following performance objectives: total
shareholder return, return on equity, return on economic capital, change in operating
income, underwriting profitability, revenue, expenses, earnings per share, operating
earnings per share, or Value Creation Ratio. Performance Goals may be numeric or a
comparison to the peer group. |
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b. |
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Written targets for the Performance Goal are established by the Committee as soon as
practicable either before or within 90 days after the beginning of each calendar year. |
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c. |
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Notwithstanding anything to the contrary in this Plan, the Committee retains complete
negative discretion (within the meaning of the applicable rules of the Internal Revenue
Service under Section 162(m) of the Code) to reduce the amount of or eliminate part or all
of the Award otherwise earned by the Participant upon the attainment of the Performance
Goal in light of factors deemed appropriate by the Committee, but in no event may the
Committee increase the amount of the Award payable to a Participant upon the attainment of
the Performance Goal. |
7. |
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Determination and Payment of Award. Awards are determined by the Committee and paid by the
Company as soon as practicable after the Committee is able to certify that the Performance
Goal established under Section No. 6 was in fact achieved. In no event are Awards paid later
than two months and 15 days following the close of the calendar year in which the Performance
Goal is achieved. |
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If a Participant terminates employment with the Company due to death or retirement during a
calendar year in which the Performance Goal is achieved, the Participant may be entitled to the
payment of the Award at the discretion of the Committee. In no event is an Award paid later than
two months and fifteen days following the close of the calendar year in which the Performance
Goal is achieved. |
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8. |
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Forfeiture and Recoupment of Awards. If at any time the Committee reasonably believes that a
Participant has committed an act of embezzlement, fraud, dishonesty, nonpayment of any
obligation owed to the company, breach of fiduciary duty or deliberate disregard of the
Companys rules resulting in loss, damage or injury to the company, any outstanding Award
under the Plan shall be forfeited. In addition, if any Participant engaged in an act of
embezzlement, fraud or breach of fiduciary duty during the Participants employment that
contributes to an obligation to restate the Companys financial statements, the Participant
shall be required to repay to the Company in cash and upon the demand, any Award paid under
this Plan based on performance of any period for which the Companys financial statements are
restated. Repayment of Awards is in addition to and separate from any other relief available
to the Company due to the Participants misconduct. Any determination by the Committee with
respect to the foregoing is final, conclusive and binding on all interested parties. |
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9. |
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Miscellaneous. |
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a. |
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Acceleration of Awards. Unless otherwise expressly provided in an applicable Award
agreement and notwithstanding any other provision of the Plan to the contrary, if a
Participants employment with the Company or one of its subsidiaries is terminated by
action of the employing entity within 12 months after the effective date of a Change in
Control, then any outstanding Award held by such Participant as of the date of termination
shall become fully vested, and the restrictions and other conditions applicable to any such
Award held by such Participant as of the date of termination, including vesting
requirements, shall lapse, and such Awards shall become free of all restrictions and fully
vested. For this purpose, a Change in Control means the event which is deemed to have
occurred if either: |
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i. |
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after the date this Plan is adopted by the Companys shareholders, without
prior approval of the Board, any person, entity or group becomes a beneficial owner,
directly or indirectly, of |
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securities of the Company representing 20 percent or more of the combined voting power
of the Companys then outstanding securities; or |
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ii. |
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without prior approval of the Board, as a result of, or in connection with, or
within two years following, a tender or exchange offer for the voting stock of the
Company, a merger or other business combination to which the Company is a party, the
sale or other disposition of all or substantially all of the assets of the Company, a
reorganization of the Company, or a proxy contest in connection with the election of
members of the Board of Directors, the persons who were directors of the Company
immediately prior to any such transactions cease to constitute a majority of the Board
of Directors or of the board of directors of any successor to the Company (except for
resignation due to death, disability or normal retirement.) For purposes of the
definition in the preceding sentence, any terms that are defined by rules promulgated
by the Securities and Exchange Commission have the meanings specified in such
definitions from time to time. |
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b. |
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Participant Rights. No Participant has any claim or right to be granted an award under
the Plan and there is no obligation on behalf of the Company or the Committee for
uniformity of treatment among Participants. Awards under the Plan may not be attached,
assigned or alienated in any manner. |
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Not an Employment Obligation. Neither the adoption of the Plan nor the granting of
Awards under the Plan (or any other action taken hereunder) confers upon any Participant
any right to be continued employment nor interferes in any way with the right of the
Company to terminate the employment of any Participant at any time. |
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Income Tax Withholding. The Company has the right to deduct from any Award to be paid
under the Plan any federal, state or local taxes required by law to be withheld with
respect to such payment. |
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Governing Law. The Plan is governed by the laws of the State of Ohio and by applicable
federal laws, excluding any conflicts or choice of law, rule or principle that might
otherwise refer construction or interpretation of the Plan to the substantive law of
another jurisdiction. Unless otherwise provided in an Award, Participants are deemed to
submit to the exclusive jurisdiction and venue of the federal or state courts of Ohio, to
resolve any and all issues that may arise out of or relate to the Plan or any related
Award. |
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Amendment, Modification and Termination. The Board of Directors of the Company may amend, modify
or terminate the Plan at any time, except that no such amendment or modification shall
affect awards previously granted. Any such amendment or modification is effective at such
date as the Board may determine. |
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Severability. If any provision of the Plan is held invalid or unenforceable, the
invalidity or unenforceability has no effect on the remaining parts of the Plan, and the
Plan shall be enforced and construed as of such provision had not been included. |
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Interpretation. The Plan is designed and intended to comply with Section 162(m) of the
Code, and all provisions hereof shall be construed in a manner to so comply. |
Page 51
Appendix B
Cincinnati Financial Corporation
Directors Stock Plan of 2009
1. |
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Purpose. The purpose of the Cincinnati Financial Corporation Directors Stock Plan of 2009 is
to enable the Company to attract and retain the service of experienced and knowledgeable
outside directors and to strengthen the alignment of interests between outside directors and
the shareholders of the Company through the increased ownership of shares of the Companys
common stock. This will be accomplished by granting shares of common stock to outside
directors as a part of their annual compensation for service on the Companys board of
directors. |
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Definitions. For purposes of the Plan, the following terms are defined as set forth below: |
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Board means the board of directors of the Company. |
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Commission means the Securities and Exchange Commission. |
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Committee means the compensation committee of the Board or a subcommittee thereof,
any successor thereto or such other committee or subcommittee as may be designated by the
Board to administer the Plan, which shall at all times consist of two or more non-employee
directors as defined in Rule 16b-3 under the Securities and Exchange Act of 1934, as
amended, or any successor rule or definition adopted by the Commission. |
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Company means Cincinnati Financial Corporation, a corporation organized under the
laws of the State of Ohio, or any successor thereto and its subsidiaries on a consolidated
basis. |
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Outside Directors mean directors of the Company who are not also officers and
employees of the Company. |
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Participants means Outside Directors of the Company. |
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g. |
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Plan means the Cincinnati Financial Corporation Directors Stock Plan of 2009, which
is the amended and restated Cincinnati Financial Corporation 2003 Non-Employee Directors
Stock Plan. |
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The Companys Committee administers the Plan. The Committee has full power, authority
and discretion to administer and interpret the Plan and to establish rules for its
administration. The Committee recommends to the Board any amendments to the Plan or
otherwise as it deems necessary or appropriate. The Committee, in making any determination
under or referred to in the Plan, is entitled to rely on opinions, reports or statements of
officers, employees, legal counsel and the public accountants of the Company. |
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A decision by a majority of the Committee governs all actions of the Committee. |
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Subject to express provisions of this Plan, the Committee has authority to grant
Participants an equivalent amount of whole shares of common stock of the Company, equal to
the sum of: |
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The Participants directors fees for meetings earned in the preceding year,
exclusive of any retainer, (but in no case more than $60,000 worth of common stock for
any year of service as a director), plus |
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The retainer earned by the Participant in the preceding year; all subject to
such conditions or restrictions, if any, as the Committee may determine. |
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The Committee may designate the secretary of the Company or such other employees of the
Company to assist the Committee in the administration of this Plan and may grant authority
to such persons to execute documents on behalf of the Committee. |
4. |
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Participation. Only Outside Directors may participate in the Plan. |
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Limitation on Number of Shares for the Plan. The total number shares of common stock of the
Company that may be awarded under the Plan shall not exceed 300,000 shares. |
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Shares Subject to Use under the Plan. Shares of common stock to be awarded under the terms of
this Plan may be either treasury shares or authorized but unissued shares. |
Page 52
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Commencing with the year 2010 and each year thereafter, the Committee may grant to each
Participant shares of common stock with a fair market value on the date of grant that equal
(i) the cash directors fees earned by such Participant for Board and committee meetings
during the prior calendar year, but limited to $60,000, plus (ii) the retainer earned by
the Participant for that year. |
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All shares awarded under the Plan are granted at the first meeting of the Committee in
each calendar year, or at such other meeting as the Committee may determine and are valued
as set forth below. |
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c. |
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The shares awarded under the Plan are subject to a restriction on the sale or other
transfer for a period of three years ending on the third anniversary of the date of grant,
and, such other conditions or restrictions, if any, as the Committee may determine. The
conditions and restrictions may vary from time to time and may be set forth in agreements
between the Company and the Participant or in the awards of shares to them, all as the
Committee may determine. Upon the death of a Participant before the end of the three-year
period of restriction on the sale or transfer of shares awarded, such restriction as to shares awarded to that Participant automatically lapse. |
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The shares awarded are valued at fair market value on the date of grant, which is
calculated as the average of the high and low sales price quotations for common stock of
the Company on the NASDAQ System on the day of the grant to a Participant. All shares
awarded are full shares, rounded up to the nearest whole share. |
8. |
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Adjustments. The amount of shares authorized to be issued under this Plan are subject to the
appropriate adjustment in the event of future stock splits, stock dividends, or other changes
in capitalization of the Company to prevent the dilution or enlargement of rights under this
Plan; following any such change, the term common stock shall be deemed to refer to such
class of shares or other securities as may be applicable. |
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The Board may, at any time, repeal or amend this Plan. The Participants and the Company
are bound by any such amendments as of their effective dates. If this Plan is repealed in
its entirety, all previously awarded shares subject to conditions or restrictions pursuant
to this Plan continue to be subject to such conditions or restrictions. |
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b. |
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Every recipient of shares pursuant to this Plan is bound by the terms and provisions of
this Plan and by any restrictions relating to the shares received and the acceptance of any
grant of shares pursuant to this Plan constitutes a binding agreement between the recipient
and the Company. |
10. |
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Duration of Plan. The Plan is effective on the date of approval by the Board, conditioned
upon shareholder approval at the next Annual Meeting of Shareholders. The Plan will terminate
on the tenth anniversary of the date it is approved by the Board unless an earlier termination
date is fixed by action of the Board, but no such termination affects the prior rights under
this Plan of the Company or of anyone to whom shares have been granted prior to such
termination. |
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11. |
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Service as a Director. Nothing in the Plan will interfere with or limit in any way the right
of the Company or the Board to terminate any Participant at any time, and neither the Plan,
nor the awarding of shares nor any other action taken pursuant to the Plan, will constitute or
be evidence of an agreement or understanding, express or implied, that any Participant will be
retained on the Board for a any period of time, or at any particular level of compensation. |
Page 53
Contact Information
Communications directed to Steven J. Johnston, FCAS, MAAA, CFA, senior vice president, chief
financial officer and secretary,
are shared with the appropriate individual(s). Or, you may directly access services:
Investors: Investor Relations responds to investor inquiries about Cincinnati Financial Corporation
and its performance.
Heather J. Wietzel Vice President, Investor Relations
513-870-2768 or investor_inquiries@cinfin.com
Shareholders: Shareholder Services provides stock transfer services, fulfills requests for
shareholder materials and assists
registered shareholders who wish to update account information or enroll in shareholder plans.
Jerry L. Litton Assistant Vice President, Shareholder Services
513-870-2639 or shareholder_inquiries@cinfin.com
Media: Corporate Communications assists media representatives seeking information or comment from
Cincinnati
Financial Corporation or its subsidiaries.
Joan O. Shevchik, CPCU, CLU Senior Vice President, Corporate Communications
513-603-5323 or media_inquiries@cinfin.com
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CINCINNATI FINANCIAL CORPORATION |
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The Cincinnati Insurance Company
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The Cincinnati Life Insurance Company |
The Cincinnati Casualty Company
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CSU Producer Resources Inc. |
The Cincinnati Indemnity Company
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CFC Investment Company |
The Cincinnati Specialty Underwriters
Insurance Company |
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Mailing Address:
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Street Address: |
P.O. Box 145496
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6200 South Gilmore Road |
Cincinnati, Ohio 45250-5496
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Fairfield, Ohio 45014-5141 |
Phone: 513-870-2000
Fax: 513-870-2066
www.cinfin.com
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CINCINNATI FINANCIAL CORPORATION P.O.
BOX 145496 CINCINNATI, OH 45250-5496
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VOTE BY INTERNET - www.proxyvote.com
Use the Internet to transmit your voting instructions and for electronic delivery
of information up until 11:59 P.M. EDT, May 1, 2009. Have your proxy card in
hand when you access the Web site and follow the instructions to obtain your
records and to create an electronic voting instruction form.
ELECTRONIC DELIVERY OF
FUTURE SHAREHOLDER COMMUNICATIONS
If you would like to reduce the costs incurred by Cincinnati Financial Corporation in mailing proxy
materials, you can consent to receiving all future proxy statements, proxy cards and annual reports
electronically via e-mail or the Internet. To sign up for electronic delivery, please follow the
instructions above to vote using the Internet and, when prompted, indicate that you agree to receive or
access shareholder communications electronically in future years.
VOTE BY PHONE - 1-800-690-6903
Use any touch-tone telephone to transmit your voting instructions up until 11:59 P.M. EDT, May 1, 2009.
Have your proxy card in hand when you call and then follow the instructions.
VOTE BY MAIL
Mark, sign and date your proxy card and return it in the postage-paid envelope we have provided or
return it to Cincinnati Financial Corporation, c/o Broadridge, 51 Mercedes Way, Edgewood, NY 11717.
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TO VOTE, MARK BLOCKS BELOW IN BLUE OR BLACK
INK AS FOLLOWS: |
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CINFI1 |
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KEEP THIS PORTION FOR YOUR RECORDS |
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DETACH
AND RETURN THIS PORTION
ONLY |
THIS PROXY CARD IS VALID ONLY WHEN SIGNED AND DATED.
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CINCINNATI FINANCIAL CORPORATION |
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For All |
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Withhold All |
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For All Except |
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To withhold authority to vote for any individual
nominee(s), mark For All Except
and write the
number(s) of the nominee(s) on the line below.
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The Board of Directors recommends a vote FOR
James E. Benoski for a term of one
year and FOR the other nominees for terms of three years. |
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Vote On Directors |
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1. |
Election of Directors Nominees: |
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01) James E. Benoski
02) William F. Bahl, CFA, CIC
03) Gretchen W. Price
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04) John J. Schiff, Jr., CPCU
05) Kenneth W. Stecher
06) E. Anthony Woods
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Vote On Proposals |
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The Board of Directors recommends a vote FOR the following proposals. |
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Against
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Abstain |
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2. |
Ratifying the selection of Deloitte & Touche LLP
as the companys independent registered public accounting firm for 2009. |
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3. |
Approving the Cincinnati Financial Corporation Annual
Incentive Compensation Plan of 2009. |
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4. |
Approving the Cincinnati Financial Corporation
Directors Stock Plan of 2009. |
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The Board of Directors recommends a vote AGAINST the following shareholder proposal, if introduced at the meeting. |
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For
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Against
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Abstain |
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5. |
Asking the board to move toward a declassified board
structure. |
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For address changes and/or comments, please check
this box and write them on the back where indicated.
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Signature [PLEASE SIGN WITHIN BOX] |
Date |
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Signature (Joint Owners) |
Date |
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Cincinnati Financial Corporation 2009 Annual Meeting
May 2, 2009, 9:30 a.m., EDT
Cincinnati Art Museum
953 Eden Park Dr.
Cincinnati, OH 45202
Important Notice Regarding Internet Availability of Proxy Materials for the Annual Meeting.
To view, visit:
2009 Shareholder Meeting Notice and Proxy Statement
www.cinfin.com/2009proxy
2008 Annual Report on Form 10-K
www.cinfin.com/200810K
Letter from the Chairman and the Chief Executive Officer
www.cinfin.com/2008chairmanandCEO_letter
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Proxy - Cincinnati Financial Corporation
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This Proxy Is Solicited on Behalf of the Board of Directors |
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The undersigned hereby appoints John J. Schiff, Jr., Kenneth W. Stecher, and Steven J. Johnston, or
any one of them, with power of substitution as proxies and hereby authorizes them to represent and
to vote as designated on the reverse side and in their discretion on such other matters as may
properly come before the meeting, all shares of Cincinnati Financial Corporation held of record on
March 4, 2009, at the Annual Meeting of Shareholders to be held on May 2, 2009, or any adjournments
thereof. |
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This proxy, when properly executed, will be voted in the manner directed herein by the undersigned
shareholder. |
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If no directions are given, this proxy will be voted FOR all nominees listed, FOR the proposal to
ratify the selection of Deloitte & Touche LLP as the companys independent registered public
accounting firm for 2009, FOR the proposals to approve the Annual Incentive Compensation Plan of
2009 and the Directors Stock Plan of 2009 and AGAINST the shareholder proposal. |
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Number of shares includes those held in your name directly, those in the Shareholder Investment
Plan and those in the Cincinnati Financial Corporation 401(k) Savings Plan, if applicable. |
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Address Changes/Comments: |
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(If you noted any Address Changes/Comments above, please mark corresponding box on the reverse side.)
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